**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 thequarterly period ended March 31, 2002**

 

**or**

 

| **o**  | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|--------|-----------------------------------------------------------------------------------------------|
|   |                                                                                          |

**Forthe transition periodfrom                  to                  **

 

**Commissionfile number 0–26083**

 

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| **INSWEB CORPORATION**                                           |
|------------------------------------------------------------------|
| (Exact name of  Registrant as specified in its charter)          |
|                                                             |   |   |
| **Delaware**                                                     |   | **94–3220749** |
| (State or other  jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification 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 reportsrequired to be filed by Sections 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the Registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  ý   No  o

 

The number of outstanding shares of the Registrant’s Common Stock, parvalue $0.001 per share, on April 30, 2002 were 7,038,797 shares.

 

 

**FORM 10–Q**

**INSWEBCORPORATION**

**INDEX**

** **
| **PART I**  | **FINANCIAL INFORMATION**                                                                   |
|-------------|---------------------------------------------------------------------------------------------|
| ITEM 1:     | Financial Statements                                                                        |
|        |                                                                                        | Condensed  Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 |
|        |                                                                                        | Condensed  Consolidated Statements of Operations for the three months ended March 31,  2002 and 2001 |
|        |                                                                                        | Condensed  Consolidated Statements of Cash Flows for the three months ended March 31,  2002 and 2001 |
|        |                                                                                        | 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                                 |
|        |                                                                                        |   |
| **PART II** | **OTHER INFORMATION**                                                                       |
| ITEM 6:     | Exhibits and  Reports on Form 8-K                                                           |
|        |                                                                                        | Signature |

 

2

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**PART I:                 FINANCIAL INFORMATION**

**ITEM 1.                  FINANCIAL STATEMENTS**

 

**INSWEBCORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

*(inthousands except per share amounts)*

 
|                                                    |   | **March 31,  2002** |   | **December  31,  2001** |   |
|---------------------------------------------------------|--------|---------------------|--------|-------------------------|--------|
| **Assets**                                              |   |                |   |                    |   |
| Current assets:                                         |   |                |   |                    |   |
| Cash and cash  equivalents                              |   | $                   | 9,565  |                    | $      | 14,627 |   |
| Short-term  investments                                 |   | 25,471              |   | 20,936                  |   |
| Accounts  receivable, net of allowance of $184 and $167 |   | 3,526               |   | 2,672                   |   |
| Prepaid expenses  and other current assets              |   | 837                 |   | 1,169                   |   |
| Total current  assets                                   |   | 39,399              |   | 39,404                  |   |
| Property and  equipment, net                            |   | 3,513               |   | 3,798                   |   |
| Prepaid  marketing costs                                |   | 5,644               |   | 6,020                   |   |
| Deposits and  other assets                              |   | 3,307               |   | 5,120                   |   |
| Total assets                                            |   | $                   | 51,863 |                    | $      | 54,342 |   |
|                                                    |   |                |   |                    |   |
| **Liabilities  and stockholders’ equity**          |   |                |   |                    |   |
| Current  liabilities:                                   |   |                |   |                    |   |
| Accounts payable                                        |   | $                   | 1,086  |                    | $      | 902 |   |
| Accrued expenses                                        |   | 4,724               |   | 3,851                   |   |
| Deferred revenue                                        |   | 984                 |   | 1,156                   |   |
| Marketing  commitment with stockholder, current portion |   | 3,079               |   | 2,026                   |   |
| Payable to  stockholder, current portion                |   | 1,130               |   | 1,145                   |   |
| Total current  liabilities                              |   | 11,003              |   | 9,080                   |   |
| Long-term  marketing commitment with stockholder        |   | 2,595               |   | 13,490                  |   |
| Total  liabilities                                      |   | 13,598              |   | 22,570                  |   |
|                                                    |   |                |   |                    |   |
| Commitments and contingencies (Note 5)                  |   |                |   |                    |   |
|                                                    |   |                |   |                    |   |
| Stockholders’  equity:                             |   |                |   |                    |   |
| Common stock                                            |   | 7                   |   | 7                       |   |
| Paid-in capital,  less treasury stock                   |   | 202,086             |   | 202,044                 |   |
| Accumulated  other comprehensive loss                   |   | (104                | )      | (95                     | )      |
| Accumulated  deficit                                    |   | (163,724            | )      | (170,184                | )      |
| Total  stockholders’ equity                        |   | 38,265              |   | 31,772                  |   |
| Total  liabilities and stockholders’ equity        |   | $                   | 51,863 |                    | $      | 54,342 |   |

 

See accompanying notes.

 

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**INSWEBCORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

*(inthousands except per share amounts)*

 
|                                                                           |   | **For the  Three Months  Ended  March 31,** |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                           |
|                                                                           |   | **2002**                                    |   | **2001** |   |
| Revenues:                                                                      |   |                                        |   |   |   |
| Transaction fees                                                               |   | $                                           | 6,393  |   | $ | 6,580 |   |
| Development and  maintenance fees                                              |   | 441                                         |   | 577 |   |
| Total revenues                                                                 |   | 6,834                                       |   | 7,157 |   |
|                                                                           |   |                                        |   |   |   |
| Operating  expenses:                                                           |   |                                        |   |   |   |
| Technology                                                                     |   | 3,020                                       |   | 3,978 |   |
| Sales and  marketing                                                           |   | 4,842                                       |   | 6,651 |   |
| General and  administrative                                                    |   | 1,781                                       |   | 2,242 |   |
| Amortization of  intangible assets and other                                   |   | —                                      |   | 567 |   |
| Total operating  expenses                                                      |   | 9,643                                       |   | 13,438 |   |
| Loss from  operations                                                          |   | (2,809                                      | )      | (6,281 | ) |
| Interest expense                                                               |   | (268                                        | )      | (15 | ) |
| Interest income  and other                                                     |   | 192                                         |   | 808 |   |
| Loss before  extraordinary item                                                |   | (2,885                                      | )      | (5,488 | ) |
| Extraordinary  gain, net of tax                                                |   | 9,345                                       |   | — |   |
| Net income  (loss)                                                             |   | $                                           | 6,460  |   | $ | (5,488 | ) |
|                                                                           |   |                                        |   |   |   |
| Net income  (loss) per share-basic and diluted:                                |   |                                        |   |   |   |
| Loss before extraordinary item                                                 |   | $                                           | (0.41  | ) | $ | (0.81 | ) |
| Extraordinary  gain                                                            |   | 1.33                                        |   | — |   |
| Net income  (loss) per share-basic and diluted                                 |   | $                                           | 0.92   |   | $ | (0.81 | ) |
| Weighted average  shares used in computing per share amounts-basic and diluted |   | 7,036                                       |   | 6,767 |   |

 

See accompanying notes.

 

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**INSWEBCORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

*(inthousands)*

 
|                                                                                                 |   | **For the  Three Months Ended  March 31,** |   |
|------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                                 |
|                                                                                                 |   | **2002**                                   |   | **2001** | ** ** |
|                                                                                                 |   |                                       |   |   |   |
| Cash flows from  operating activities:                                                               |   |                                       |   |   |   |
| Net income  (loss)                                                                                   |   | $                                          | 6,460  |   | $ | (5,488 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |   |                                       |   |   |   |
| Extraordinary  gain                                                                                  |   | (9,345                                     | )      | — |   |
| Amortization of  intangible assets and prepaid marketing costs                                       |   | 376                                        |   | 499 |   |
| Depreciation and  amortization                                                                       |   | 713                                        |   | 1,099 |   |
| Foreign currency  translation loss (gain) on note payable to stockholder                             |   | 6                                          |   | (117 | ) |
| Amortization of  stock-based compensation                                                            |   | —                                     |   | 68 |   |
| Issuance of  common stock warrants                                                                   |   | —                                     |   | 276 |   |
| Loss on  disposal/sale of equipment                                                                  |   | —                                     |   | 52 |   |
| Equity loss from  investment in InsWeb Japan K.K.                                                    |   | —                                     |   | 82 |   |
| Net changes in  operating assets and liabilities:                                                    |   |                                       |   |   |   |
| Accounts  receivable                                                                                 |   | (854                                       | )      | (475 | ) |
| Prepaid expenses  and other current assets                                                           |   | 332                                        |   | 1,572 |   |
| Deposits and  other assets                                                                           |   | 1,609                                      |   | (85 | ) |
| Accounts payable                                                                                     |   | 184                                        |   | (147 | ) |
| Accrued expenses                                                                                     |   | 873                                        |   | 746 |   |
| Deferred revenue                                                                                     |   | (172                                       | )      | (1,771 | ) |
| Restructuring  accrual                                                                               |   | —                                     |   | (85 | ) |
| Other  liabilities                                                                                   |   | —                                     |   | 130 |   |
| Net cash  provided by (used in) operating activities                                                 |   | 182                                        |   | (3,644 | ) |
| Cash flows from  investing activities:                                                               |   |                                       |   |   |   |
| Redemptions of  short term investments                                                               |   | 7,829                                      |   | 5,295 |   |
| Purchases of  short term investments                                                                 |   | (12,373                                    | )      | (7,588 | ) |
| Purchases of  property and equipment and website development costs                                   |   | (245                                       | )      | (713 | ) |
| Acquisition  costs relating to assets purchased from Intuit                                          |   | —                                     |   | (243 | ) |
| Net cash used in  investing activities                                                               |   | (4,789                                     | )      | (3,249 | ) |
| Cash flows from  financing activities:                                                               |   |                                       |   |   |   |
| Payments on  marketing commitments                                                                   |   | (497                                       | )      | — |   |
| Proceeds from  issuance of common stock through stock plans                                          |   | 42                                         |   | 42 |   |
| Net cash (used  in) provided by financing activities                                                 |   | (455                                       | )      | 42 |   |
| Net decrease in  cash and cash equivalents                                                           |   | (5,062                                     | )      | (6,851 | ) |
| Cash and cash  equivalents, beginning of period                                                      |   | 14,627                                     |   | 24,795 |   |
| Cash and cash  equivalents, end of period                                                            |   | $                                          | 9,565  |   | $ | 17,944 |   |
|                                                                                                 |   |                                       |   |   |   |
| Supplemental  disclosure of cash flow information:                                                   |   |                                       |   |   |   |
| Cash paid during  the period for interest                                                            |   | $                                          | 268    |   | $ | 15 |   |
|                                                                                                 |   |                                       |   |   |   |
| Supplemental disclosure of noncash investing and  financing activities:                              |   |                                       |   |   |   |
| Issuance of common stock for Intuit assets                                                           |   | $                                          | — |   | $ | 12,547 |   |
| Payable to  stockholder for Intuit assets                                                            |   | $                                          | — |   | $ | 17,022 |   |

 

See accompanying notes.

 

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**INSWEBCORPORATION AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

*(Amountsin thousands except per share amounts)*

 

**1. Business of InsWeb**

 

InsWeb Corporation operates an online insurancemarketplace that enables consumers to comparison shop online and obtainsinsurance company–sponsored quotes for a variety of insurance products,including automobile, term life and homeowners. InsWeb’s marketplaceelectronically matches consumers and insurance companies. InsWeb has combinedextensive knowledge of the insurance industry, technological expertise andclose relationships with a significant number of insurance companies to developan integrated online marketplace. InsWeb’s marketplace enables consumers toresearch insurance–related topics, search for, analyze and compareinsurance products, apply for and receive insurance company–sponsoredquotes for actual coverage and to purchase automobile insurance coverage throughInsWeb’s insurance agency. Management believes that InsWeb provides insurancecompanies with pre–qualified consumers at substantially lower acquisitioncosts, as well as the scalable, cost–efficient distribution capabilitiesof InsWeb’s Internet–based model.

 

InsWeb is subject to all of the risks inherent in anearly stage business in the electronic commerce industry and special risksrelated to the online insurance industry. These risks include, but are notlimited to, a limited operating history, limited management resources,dependence upon consumer acceptance of the Internet, Internet related securityrisks, the changing nature of the electronic commerce industry, and variationsin consumer traffic and insurance company participation. Due to the foregoingfactors, InsWeb’s future operating results may be materially affected.

 

***Basis of Presentation***

 

The consolidated financial statements include theaccounts of InsWeb Corporation and its wholly-owned subsidiary, InsWebInsurance Services, Inc. (“InsWeb” or the “Company”).  All significant inter-company accounts and transactions have beeneliminated in the consolidated financial statements.

 

The accompanying unaudited interim financialstatements have been prepared in accordance with accounting principles generallyaccepted in the United States for interim financial information and with theinstructions 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 of America 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, results of operationsand cash flows as of March 31, 2002 and for the periods ended March 31, 2002and March 31, 2001.  The financial dataand other information disclosed in these notes to the condensed consolidatedfinancial statements related to these periods are unaudited.  The results for the three months ended March31, 2002 are not necessarily indicative of the results to be expected for theyear ending December 31, 2002.

 

These condensed consolidated financial statementsshould be read in conjunction with the consolidated financial statements andnotes thereto included in InsWeb’s Annual Report on Form 10-K, as filed withthe Securities and Exchange Commission on April 1, 2002, and other informationfiled with the Commission.

 

***Reclassification***

 

Certain prior year amounts have been reclassified toconform to the current year presentation.

 

**2. Income (loss)**

 

Total income (loss) for the three months ended March31, 2002 and 2001 were as follows:

 

|                                             |   | **For the  Three Months Ended  March 31,** |   |
|--------------------------------------------------|--------|--------------------------------------------|--------|
|                                             |   | **2002**                                   |   | **2001** |   |
| Net income  (loss)                               |   | $                                          | 6,460  |   | $ | (5,488 | ) |
| Other  comprehensive loss:                       |   |                                       |   |   |   |
| Foreign currency  translation adjustments        |   | —                                     |   | (165 | ) |
| Change in  unrealized (loss) gain on investments |   | (9                                         | )      | 2 |   |
| Total  comprehensive income (loss)               |   | $                                          | 6,451  |   | $ | (5,651 | ) |

 

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**3. Related Party Transactions**

 

During the three months ended March 31, 2002, InsWebrecognized $357 in marketing expense under a marketing agreement with anInternet company, compared to $1,025 for the comparable period in 2001.  An affiliate of the Internet company becamea stockholder of InsWeb on December 30, 1998.

 

For the three months ended March 31, 2002 and2001, InsWeb paid Intuit $750 and $625 under a license and distributionagreement, which was amended on March 28, 2002 (see Note 5).

 

**4. Recent Accounting Pronouncements**

 

In July 2001, the Financial Accounting StandardsBoard (the “FASB”) issued SFAS No. 142, “Goodwill and Other Intangibles  Assets” (“SFAS 142”), which InsWebadopted  effective January 1, 2002.Under SFAS 142, goodwill and indefinite–lived intangible assets are nolonger amortized but are reviewed for impairment annually, or more frequentlyif indications of possible impairment exist. The adoption of SFAS 141 and SFAS142 did not affect InsWeb’s financial condition, results of operations or cashflows.

 

In October 2001, the FASB issued SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-LivedAssets and for Long-Lived Assets to Be Disposed Of,” and provides guidance foraccounting and reporting for the impairment or disposal of long-lived assets.InsWeb adopted SFAS 144 effective January 1, 2002. The adoption of SFAS144 did not affect InsWeb’s financial condition, results of operations or cashflows.

 

**5. Commitments and Contingencies**

 

***Marketing Agreements***

 

In January 2001, InsWeb acquired from Intuit Inc.(“Intuit”) certain assets and related liabilities associated with an onlineinsurance shopping and purchasing service operated by Intuit InsuranceServices, Inc., a wholly-owned subsidiary of Intuit. InsWeb did not acquire anyof Intuit’s revenue producing relationships with insurance carriers; however,InsWeb acquired the right to be assigned all Internet traffic from thelicensing agreements that Intuit had previously negotiated with its strategicpartners.

 

In connection with the acquisition, InsWeb and Intuitentered into a license and distribution agreement under which Intuit and InsWebgranted one another licenses to create links between their respective websitesin order to create and operate a co-branded insurance center. Under thisagreement InsWeb is the exclusive aggregator of online consumer insuranceservices for Quicken.com, an Intuit website. The original agreement requiredInsWeb to pay Intuit fixed fees totaling $20,500 plus additional amountsassociated with consumers linking from the Quicken.com website to the InsWebco-branded insurance center. Intuit also agreed to a not-to-compete covenant for a period of five years.

 

The total purchase cost of approximately $30,117 wascomprised of 1,170,000 shares of InsWeb’s common stock with a fair value at dateof issuance of $12,547, long-term marketing commitments of $17,022 whichrepresented the present value of the fixed fees due over the term of thelicense and distribution agreement, and other acquisition related expenses of$548 consisting primarily of payments to a financial advisor. InsWeb recorded anoncurrent asset of $17,022 for prepaid marketing costs and an intangible assetof $13,095 relating to the beneficial terms of the license and marketingagreement. The fair value of the intangible asset was estimated based on theexpected Internet traffic to be received from Intuit by InsWeb. These assetsbeing are amortized over the five-year term of the license and distributionagreement. Amortization of these assets is included as a component of sales andmarketing expense.

 

Subsequent to the acquisition date, as a result ofsignificantly lower than anticipated traffic levels, InsWeb reassessed therecoverability of the assets recorded in connection with the purchase, bycomparing the estimated future undiscounted cash flows expected to be generatedrelating to these assets to their carrying amounts. Based on this evaluation,InsWeb determined that assets with a carrying amount of $24,539 were impairedand recorded an impairment charge of $18,519 in the fourth quarter of 2001 asthe carrying value of these assets was in excess of fair value. The fair valueof the acquired assets was based on estimated future cash flows to be generatedfrom the license and distribution agreement, discounted using a rate that iscommensurate with the risk involved.

 

On March 28, 2002, the parties amended theagreement.  Under the amended agreement,InsWeb will make the originally agreed upon fixed payments (long–termmarketing commitments) only through July 31, 2003 ($4,250 through May2003). Fixed payments previously payable to Intuit after July 31, 2003have been forgiven ($2,000 in 2003, $5,000 in 2004 and $6,000 in 2005).Effective August 1, 2003 and through the remainder of the agreement(January 2006), InsWeb will pay Intuit a portion of the transaction feesreceived by InsWeb from the Intuit Internet traffic, payable on a quarterlybasis.  The net result of this amendedcontract was a $9,345 extraordinary gain, accounted for in InsWeb’s results ofoperations for the quarter ended March 31, 2002.

 

At March 31, 2002, future minimum payments under thisagreement were:  $2,250 in 2002; $2,000in 2003; and none thereafter.

 

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***eHealthInsurance Litigation***

 

In February 2001, InsWeb temporarily suspendedits online health insurance quoting services due to the decision byeHealthInsurance, formerly InsWeb’s exclusive provider of online healthinsurance quotes, to unilaterally terminate the relationship. InApril 2000, the two companies signed a two-year online distributionagreement by which eHealthInsurance became the exclusive provider of individualhealth, small–group health and Medicare supplement insurance quotes toInsWeb’s users through a co-branded website. In February 2001, eHealthInsurancefiled suit in the U.S. District Court for the Northern District of Californiaalleging InsWeb’s failure to perform its obligations under the agreement. Thecomplaint seeks unspecified compensatory and punitive damages.  In March 2001, InsWeb filed acounterclaim alleging that eHealthInsurance wrongfully terminated the linkingagreement and pursued a course of conduct aimed at damaging InsWeb’sbusiness.  Due to the inherentuncertainties of litigation, InsWeb cannot accurately predict the ultimateoutcome of this matter at this time and therefore, cannot estimate the range ofprobable loss. InsWeb believes it has meritorious defenses with respect to thisclaim, however InsWeb cannot assure that it will prevail in this action. Anunfavorable outcome could have a material adverse effect on InsWeb’s financialcondition, results of operations or cash flows.

 

***Securities Class Action Lawsuit***

 

A class action lawsuit was filed on December 5,2001 in the U.S. District Court for the Southern District of New York on behalfof purchasers of InsWeb common stock alleging violations of federal securitieslaws. The case is brought purportedly on behalf of all persons who purchasedInsWeb common stock from July 22, 1999 through December 6, 2000. The complaintnames as defendants InsWeb, certain current and former officers and directors,and three underwriters for InsWeb’s initial public offering in July 1999. Thecomplaint alleges violations of the Securities Act of 1933 and the SecuritiesExchange Act of 1934, on the grounds that the prospectus incorporated in theregistration statement for the offering failed to disclose, among other things,that (i) the underwriters had solicited and received excessive and undisclosedcommissions from certain investors in exchange for which the underwritersallocated to those investors substantial blocks of the stock sold in theinitial public offering, and (ii) the underwriters had entered into agreementswith customers whereby the underwriters agreed to allocate shares of the stocksold in the initial public offering to those customers in exchange for whichthe customers agreed to purchase additional shares of InsWeb stock in theaftermarket at pre–determined prices that were above the initial publicoffering price. No specific damages are claimed.  InsWeb believes that the allegations against InsWeb and itscurrent and former officers and directors are without merit and intends tocontest them vigorously. The litigation is in the preliminary stage, and InsWebcannot predict its outcome. The litigation process is inherently uncertain. Anunfavorable outcome could have a material adverse effect on InsWeb’s financialcondition, results of operations or cash flows.

 

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*InsWebhas included in this filing certain “forward–looking statements” withinthe meaning of the Private Securities Litigation Reform Act of 1995 concerningInsWeb’s business, operations and financial condition.  The words or phrases “expects,”“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” andsimilar expressions are generally intended to identify forward–lookingstatements.  Such forward–lookingstatements are subject to various known and unknown risks and uncertainties,and InsWeb cautions you that any forward–looking information provided by,or on behalf of, InsWeb is not a guarantee 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 strategicalliances.  These risks and uncertainties,as well as other risks and uncertainties are described in greater detail in thesection entitled “Factors That May Affect Future Performance.” All forward–lookingstatements are based on information available to InsWeb on the date hereof, andInsWeb assumes no obligation to update such statements.*

 

**Overview**

 

InsWeb operates an online insurance marketplace thatenables consumers to shop online for a variety of insurance products, includingautomobile, term life, homeowners, renters and health insurance, and obtaininsurance company–sponsored quotes for actual coverage. In order tocreate this marketplace, InsWeb has established close relationships with asignificant number of insurance companies throughout the United States.

 

InsWeb’s principal source of revenues is transactionfees. While quotes obtained through InsWeb’s online insurance marketplace areprovided to consumers free of charge, InsWeb’s participating insurancecompanies pay transaction fees to InsWeb generally based on qualified leadsdelivered to them electronically. Qualified leads are produced in two ways: forinsurance companies offering consumers instant online quotes, a qualified leadis produced when a consumer requests insurance coverage based on a specificquote; for insurance companies providing e-mail or other offline quotes, aqualified lead is produced when the consumer clicks to request the quoteitself. In either case, transaction fees are generally payable whether or notthe consumer actually purchases an insurance policy from the insurance company.

 

InsWeb also generates development and maintenance feesfrom its participating insurance companies. InsWeb charges a fee to design and develop customized interfaces betweenan insurance company’s information system and the InsWeb site.  InsWeb recognizes revenue from set-up feesreceived from a participating insurance carrier ratably over the estimated lifeof the carrier relationship, after the development work is complete and theinsurance company’s integration with the Company’s site has become operational(“Live Date”). Additional development fees are charged as insurance companiesadd new products, increase their geographic coverage and convert to instantquoting capability on the InsWeb online insurance marketplace, as well as forperiodic upgrades and changes to insurance companies’ information resident onthe InsWeb site. InsWeb charges maintenance fees for maintaining and servicingthe programs of the individual insurance companies and for maintaining anyhardware at InsWeb’s facility that is dedicated to specific insurancecompanies. These maintenance fees are typically payable monthly and arerecognized as revenue ratably over the term of the maintenance agreement.Prepaid development and maintenance fees are recorded as deferred revenue untilearned. Development and maintenance fees are expected to account for adeclining percentage of total revenues as transaction fees and agencycommission revenues increase.

 

Technology expenses consist primarily of payroll andrelated expenses, including employee benefits, facility costs,telecommunications and systems costs, for the planning and design, carrierimplementation and integration, and product and site developmentpersonnel.  InsWeb expects itstechnology expenses to remain flat for the remainder of 2002.

 

Sales and marketing expenses consist of payroll andrelated expenses, including employee benefits, facility costs,telecommunications and systems costs, for InsWeb’s sales and marketingpersonnel and the personnel and related costs for the InsWeb Insurance Agency,which includes selling agents, underwriters, supervisors and customer serviceand support groups. Also included in sales and marketing expense are directmarketing expenditures that include advertising, promotions and fees paid toonline companies with which InsWeb has contractual relationships to driveconsumer traffic to the InsWeb online marketplace.  InsWeb’s current consumer marketing program is focused onmaintaining key online relationships and selective cost-effective marketingcampaigns designed to maintain consumer awareness of InsWeb and its onlineinsurance marketplace.  Direct marketingcosts will fluctuate based on the amount of consumer traffic driven to theInsWeb marketplace, while all other sales and marketing expenses are expectedto be flat for the remainder of 2002.

 

General and administrative expenses consist primarilyof payroll and related expenses, including employee benefits, facility costs,telecommunications and systems costs, for InsWeb’s general management,administrative and accounting personnel, as well as other general corporateexpenses. General and administrative expenses are expected to be flat for theremainder of 2002

 

Since its inception, InsWeb has incurred significantlosses, and as of March 31, 2002 InsWeb had an accumulated deficit of $163.7million.  These losses, and thisaccumulated deficit, have resulted from the significant costs incurred in thedevelopment of InsWeb’s technology platform, the establishment of relationshipswith insurance companies, their integration with the InsWeb site, and InsWeb’s

 

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marketing and sales activities. InsWeb intends to continue to invest in product development, sales andmarketing and in its administrative infrastructure.  As a result, InsWeb believes that it will continue to incuroperating losses at least through the balance of the current fiscal year.  Although InsWeb has experienced revenuegrowth in recent periods, its operating results for future periods are subjectto numerous uncertainties, and there can be no assurance that InsWeb’s revenuegrowth will continue or that it will be able to achieve and sustainprofitability.  In view of the rapidlyevolving nature of InsWeb’s business and its limited operating history, InsWebbelieves that period-to-period comparisons of its operating results are notnecessarily meaningful and should not be relied upon as an indication of futureperformance.

 

**Results of Operations**

 

The following table sets forth certain statement ofoperations items as a percentage of total revenues for the three months endedMarch 31, 2002 and 2001:

 

|                                         |   | **For  theThree Months Ended  March 31,** |   |
|----------------------------------------------|--------|-------------------------------------------|--------|
|                                         |   | **2002**                                  |   | **2001** |   |
| Revenues:                                    |   |                                      |   |   |   |
| Transaction fees                             |   | 94                                        | %      | 92 | % |
| Development and  maintenance fees            |   | 6                                         | %      | 8 | % |
| Total                                        |   | 100                                       | %      | 100 | % |
| Operating  expenses:                         |   |                                      |   |   |   |
| Technology                                   |   | 44                                        | %      | 56 | % |
| Sales and  marketing                         |   | 71                                        | %      | 93 | % |
| General and  administrative                  |   | 26                                        | %      | 31 | % |
| Amortization of  intangible assets and other |   | —                                    |   | 8 | % |
| Total                                        |   | 141                                       | %      | 188 | % |
| Loss from  operations                        |   | (41                                       | )%     | (88 | )% |

 

***Revenues***

 

*TransactionFees.*  Transactionfees accounted for $6.4 million of total revenues for the three months endedMarch 31, 2002, compared to $6.6 million, for the comparable period in 2001.The decrease was primarily attributable to the loss of health insurance revenuesfrom eHealthInsurance effective February 2001. eHealthInsurance represented none of InsWeb’s revenues for the threemonths ended March 31, 2002 versus 22% of total revenues in the comparableprior year period.  The decrease inrevenues associated with the loss of eHealthInsurance was partially offset byan increased number of leads generated by an increased number of completedshopping sessions.  The increase inshopping sessions resulted from increased consumer traffic from InsWeb’smarketing activities.

 

During the first thee months of 2002, approximately0.9 million shopping sessions were completed at InsWeb, a 29% increase from theapproximate 0.7 million shopping sessions completed in the first three monthsof 2001.  InsWeb recorded approximately3.7 million consumer quotes presented during the first three months of 2002, anincrease of 12% from the approximate 3.3 million consumer quotes presented inthe comparable period in 2001.

 

*Developmentand Maintenance Fees.* Development and maintenance fees were $0.4 million for the three monthsended March 31, 2002, compared to $0.6 million for the comparable period in2001.  The decrease was primarilyattributable to InsWeb transitioning to a greater number of agency-basedcarriers, which generally do not require services that generate development andmaintenance fees.

 

***Operating Expenses***

 

*Technology.*  Technology expenses decreased to $3.0million for the three months ended March 31, 2002, from $4.0 million for thecomparable period in 2001.  The decreasewas primarily attributable to reduced headcount and retention bonuses that werepaid in 2001.

 

*Salesand Marketing.*  Salesand marketing expenses decreased to $4.8 million for the three months endedMarch 31, 2002, from $6.7 million for the comparable period in 2001.  Direct marketing expenses decreased to $2.9million for the three months ended March 31, 2002, from $4.2 million for thecomparable period in 2001.  The decreasewas primarily attributable to a significant reduction in offline advertisingrelationships combined with a reduction in headcount and retention bonuses thatwere paid in 2001.

 

*Generaland Administrative.* General and administrative expenses decreased to $1.8 million for thethree months ended March 31, 2002, from $2.3 million  for the comparable period in 2001.  The decrease was primarily due to reductions in personnel andrelated cost, and decreased office and occupancy costs.

 

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*Amortizationof Intangible Assets and Other.*  Amortization of intangible assets and other during the threemonths ended March 31, 2001 was $0.6 million. This expense primarily reflected the amortization of intangiblesassociated with the acquisition of certain assets of Intuit in January 2001.

 

***Interest Expense***

 

Interest expense increased to $268,000 during thethree months ended March 31, 2002, from $15,000 for the comparable period in2001. The increase in interest expense was primarily attributable to imputedinterest associated with the long-term marketing commitments (fixed payments)recorded in conjunction with the acquisition of certain assets from Intuit.

 

***Interest Income and Other***

 

Interest income and other decreased to $0.2 millionfor the three months ended March 31, 2002, from $0.8 million for the comparableperiod in 2001. Interest income and other includes income earned on InsWeb’sinvestments and the gain (loss) on foreign currency exchange rate fluctuationsassociated with a note payable to a strategic partner and stockholder incurredin connection with InsWeb’s investment in Finance All K.K. The decrease ininterest income and other was primarily a result of decreased interest incomedue to lower average cash and short-term investment balances during 2002 and,to a lesser extent, lower interest rates.

 

***Extraordinary Gain***

 

On March 28, 2002, InsWeb amended its license anddistribution agreement with Intuit Inc. Under the amended agreement, InsWeb will make the originally agreed uponfixed payments (long–term marketing commitments) only through July 31,2003 ($4.3 million through May 2003). Fixed payments previously payable toIntuit after July 31, 2003 have been forgiven ($2.0 million in 2003, $5.0million in 2004 and $6.0 million in 2005). Effective August 1, 2003 andthrough the remainder of the agreement (January 2006), InsWeb will payIntuit a portion of the transaction fees received by InsWeb from the IntuitInternet traffic, payable on a quarterly basis.  The net result of this amended contract was a $9.3 millionextraordinary gain for the three months ended March 31, 2002.

 

**Critical Accounting Policies**

 

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

 

***Impairment of Long-Lived Assets.***  In assessing the recoverability of InsWeb’slong-lived assets, InsWeb must make assumptions regarding estimated future cashflows and other factors to determine the fair value of the respective assets.If these estimates or their related assumptions change in the future, InsWeb mayhave to record additional impairment charges not previously recognized.

 

***Investment in Equity Securities.***  InsWeb holds a minority ownership interestin Finance All K.K., a privately held corporation.   InsWeb would record an investment impairment charge if and whenit believes an investment has experienced a decline in value that is other thantemporary. Future adverse changes in market conditions or poor operatingresults of Finance All K.K. could result in losses or an inability to recoverthe carrying value of the investment that is not currently reflected in theinvestment’s carrying value, thereby possibly requiring an impairment charge inthe future.

 

***Contingencies.***  As discussed above, eHealthInsurance hasfiled suit in U.S. District Court against InsWeb alleging InsWeb’s failure toperform its obligations under the linking agreement and a class action lawsuithas been filed that alleges that InsWeb violated certain federal securitieslaws at the time of its initial public offering. InsWeb is required to assessthe likelihood of any adverse judgments or outcomes to these matters as well asthe potential range of probable loss. Due to the inherent uncertainties oflitigation, InsWeb cannot accurately predict the ultimate outcome of thesematters at this time and, therefore, cannot estimate the range of probableloss. InsWeb believes it has meritorious defenses with respect to these claims.However, InsWeb cannot assure that it will prevail in these actions andtherefore, a reserve may be required in the future due to new developments inthese actions or changes in approach, such as a change in settlement strategy.

 

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**Liquidity and Capital Resources**

 

At March 31, 2002, InsWeb’s principal source of liquiditywas $35.0 million in cash, cash equivalents and short–term investments,which decreased from $35.6 million as of December 31, 2001.  The decrease resulted primarily from $0.5million and $0.3 million used in financing and investing activities, respectively,offset in part by $0.2 million provided by operating activities.

 

For the three months ended March 31, 2002, net cashprovided by operating activities was $0.2 million compared to net cash used inoperating activities of $3.7 million for the comparable period in 2001.  For the three months ended March 31, 2002,non-cash items included an extraordinary gain of $9.3 million, amortization ofintangibles and prepaid marketing costs of $0.4 million, and depreciation andamortization of assets of $0.7 million. A decrease in deposit and other assets of $1.6 million and in increasein accrued expenses of $0.9 million, partially offset by in increase ofaccounts receivable of $0.9 million, also contributed to the cash provided byoperations for the three months ended March 31, 2002.

 

The use of cash primarily consisted of InsWeb’sinvesting activities.  For the threemonths ended March 31, 2002, net cash used in investing activities was $4.8million, which primarily consisted of the purchase of short–term investmentsoffset by the redemptions of short-term investments.

 

For the three months ended March 31, 2002, net cashused in financing activities was $0.5 million. Cash outflows were  attributableto a fixed payment made to Intuit for marketing commitments which are required to be made pursuant to theagreement entered into with Intuit  inJanuary 2001.  

 

As of March 31, 2002, InsWeb had the followingcontractual commitments (in thousands):

 
|                                        |   | **Total** |   | **2002** |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **Thereafter** |   |
|---------------------------------------------|--------|-----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------------|--------|
|                                        |   |      |   |     |   |     |   |     |   |     |   |     |   |           |   |
| Long-term  marketing commitment with Intuit |   | $         | 4,250  |     | $      | 2,250    |   | $        | 2,000  |     | $      | —   |   | $              | — |   | $ | — |   | $ | — |   |
| Operating leases                            |   | 24,861    |   | 2,562    |   | 3,360    |   | 3,356    |   | 3,257    |   | 3,391    |   | 8,935          |   |
| Other marketing  commitments                |   | 650       |   | 483      |   | 167      |   | —   |   | —   |   | —   |   | —         |   |
| Promissory note  payable to stockholder     |   | 1,130     |   | 1,130    |   | —   |   | —   |   | —   |   | —   |   | —         |   |
|                                        |   | $         | 30,891 |     | $      | 6,425    |   | $        | 5,527  |     | $      | 3,356    |   | $              | 3,257  |   | $ | 3,391 |   | $ | 8,935 |   |

 

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

 

InsWeb currently anticipates that its cash, cashequivalents and short-term investments will be sufficient to meet itsanticipated cash needs for working capital and capital expenditures for atleast the next 12 months. Although InsWeb does not anticipate the need foradditional financing, InsWeb nevertheless may require additional funds to meetoperating needs, or to expand its business internally or through acquisition.InsWeb cannot be certain that additional financing will be available whenrequired, on favorable terms or at all. If InsWeb is not successful in raisingadditional capital as required, its business could be materially harmed. Ifadditional funds were raised through the issuance of equity securities, thepercentage ownership of InsWeb’s then-current stockholders would be reduced.

 

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**Factors That May Affect Our FuturePerformance**

 

*Ourfuture business, operating results and financial condition are subject tovarious risks and uncertainties, including those described below.*

 

**Our business is difficult to evaluatebecause we did not begin to generate significant revenues from our corebusiness until 1998**

 

We were incorporated in February 1995, but we didnot begin to generate significant transaction fees from our online marketplaceuntil 1998. Our limited operating history makes an evaluation of our futureprospects very difficult. An investor in our common stock must consider theuncertainties frequently encountered by early stage companies in new andrapidly evolving markets. These uncertainties 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;

 

•                                          ourpotential inability to successfully manage our anticipated growth, which couldlead to management distractions and increased operating expenses;

 

•                                          ourability to retain key employees; and

 

•                                          ourreliance on key customers and ability to retain customers.

 

To address theseuncertainties, we must, among other things:

 

•                                          refineour business model;

 

•                                          workto expand the efficiencies and geographic coverage of our agency activities;

 

•                                          enhancethe brand identity of our online insurance marketplace;

 

•                                          maintainand increase our strategic alliances with other online businesses to increasetraffic to our website;

 

•                                          maintain,increase and geographically diversify our base of participating insurance companies;

 

•                                          continueto ensure that our participating insurance companies offer competitiveinsurance products;

 

•                                          satisfylegal and regulatory requirements applicable to the insurance industry; and

 

•                                          continueto address consumer privacy concerns.

 

Our business strategy may not be successful and we maynot be able to successfully address these uncertainties. Moreover, our abilityto take the foregoing steps may be hampered by our limited financial resourcesshould we fail to rapidly increase revenues or should increased revenues bemore than offset by increased operating expenses.

 

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

 

Given planned investment levels, our ability toachieve profitability will depend upon our ability to generate and sustainsubstantially increased revenues. As a result, we believe that we will incursignificant operating losses for the foreseeable future. We incurred operatinglosses of $46.0 million for the year ended December 31, 2001, $53.6million for the year ended December 31, 2000, and $38.4 million for theyear ended December 31, 1999. For the three months ended March 31, 2002 weincurred an operating loss of $2.8 million. As of March 31, 2002, our accumulated deficit was $163.7 million.Our operating results for future periods are subject to numerous uncertainties,and we may not achieve sufficient revenues to become profitable. Even if weachieve profitability, we may not sustain or increase profitability on aquarterly or annual basis in the future. If we are unable to achieveprofitability, or if our profitability is delayed we may need to seekadditional financing to continue our business operations. Such financing couldbe on terms that are dilutive to our existing stockholders or could involve theissuance of securities that have rights and preferences that are senior tothose associated with our common stock. Moreover, if such financing

 

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were not available or were available only upon terms that wereunacceptable to us, we could be required to significantly curtail ouroperations.

 

**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 our limited operating history, the emergingnature of the market in which we compete and the high proportion of ourrevenues that are derived from consumer traffic on our website, our futurerevenues are inherently difficult to forecast. We believe that period-to-periodcomparisons of our operating results may not be meaningful, and you should notrely upon them as an indication of our future performance. Moreover, ourexpense levels are based largely on our investment plans and estimates offuture revenues. We may be unable to adjust our spending to compensate for anunexpected shortfall in revenues. Accordingly, any significant shortfall inrevenues relative to our planned expenditures would harm our results ofoperations and could cause our stock price to fall sharply, particularlyfollowing quarters in which our operating results fail to meet the expectationsof securities analysts or investors.

 

Factors that may cause fluctuations in our operatingresults include the following, many of which 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;

 

•                                          Suchconsumer traffic may also fluctuate as a result of changes in consumeracceptance of Internet commerce, particularly in connection with shopping forinsurance;

 

•                                          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 and/or revenue frominsurance agency activities may fluctuate due to changes in our user interfaceor other features on our site or changes in the underwriting criteria used byour participating insurance companies to determine which consumers will beoffered quotes; and

 

•                                          Ourability to generate transaction fees and/or revenue from insurance agencyactivities may also be harmed due to technical difficulties on our website thathamper a consumer’s ability to start or complete a shopping session.

 

**Seasonality affecting insuranceshopping and Internet usage may cause fluctuations in our operating results**

 

We have experienced seasonality in our businessassociated with general slowness in the insurance industry during the year-endholiday period. We expect to continue to experience seasonality as our businessmatures. Because of this seasonality, investors may not be able to predict ourannual operating results based on a quarter-to-quarter comparison of ouroperating results. We believe seasonality will have an ongoing impact on ourbusiness.

 

**Because a significant portion of ourrevenue 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**

 

Automobile insurance accounted for approximately 67%of our transaction revenues in 2001, approximately 69% in 2000 andapproximately 78% in 1999. For the three months ended March 31, 2002 autoinsurance account for approximately 80% of our transaction revenues.  We anticipate that automobile insurance willcontinue to account for a substantial portion of our revenues for theforeseeable future. As a result, if we fail to attract a broad base ofconsumers to shop for automobile insurance on our site, or if changes in theautomobile insurance industry make electronic commerce a less attractive meansto shop for this type of insurance, our ability to generate revenue will bereduced and our business will be harmed. In addition, property and casualtyinsurance, including automobile insurance, is subject to operating cycles. Duringa cycle in which loss ratios rise, insurance companies may choose to restrictthe amount of business they write while they await approval of rate increasesfrom the various state insurance departments. Our business could be harmed ifour participating insurance companies reduce their participation in our onlinemarketplace.

 

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**If we are unable to promote our brandand expand our brand recognition, our ability to draw consumers to our websitewill be limited**

 

A growing number of websites offer services that aresimilar to and competitive with the services offered on our online insurancemarketplace. Therefore, a positive recognition of our brand is critical toattracting additional consumers to our website, strengthening our relationshipswith participating insurance companies and attracting new insurance companies.In order to attract and retain consumers and insurance companies and to promoteand maintain our brand, through the first quarter of 2000, we increased ourfinancial commitment to creating and maintaining prominent brand awareness.Beginning in the second quarter of 2000, our consumer-marketing program hasbeen reduced and our radio and television marketing campaigns have beendiscontinued. Our current marketing program consists of the maintenance ofcertain network online relationships and other selective cost effectivemarketing campaigns, designed to maintain consumer awareness of InsWeb and ouronline insurance marketplace. If our marketing efforts do not generate acorresponding increase in revenues or we otherwise fail to successfully promoteour brand, or if these efforts require excessive expenditures, our businesswill be harmed. Moreover, if visitors to our website do not perceive our existingservices or the products and services of our participating insurance companiesto be of high quality, or if we alter or modify our brand image, introduce newservices or enter into new business ventures that are not favorably received,the value of our brand could be harmed.

 

**Our plans to offer additionalservices could result in significant expenditures, and we may not generatesufficient revenue to offset these expenditures**

 

We intend to offer additional services including,among other things:

 

•                                          performingactivities on behalf of an increased number of insurance companies as anauthorized agent;

 

•                                          addingnew insurance companies and helping our existing insurance companies to expandthe number of states in which they are offering coverage in our onlinemarketplace;

 

•                                          increasingthe level of technology integration between our platform and the systems of ourparticipating insurance companies; and

 

•                                          continuingour market presence through relationships with Internet portals, financialinstitutions, websites oriented to activities that involve the purchase ofinsurance, such as automobile shopping sites, and other online companies.

 

We may not be able to offer these additional servicesin a cost-effective or timely manner, or these efforts may not increase theoverall market acceptance of our products and services. Expansion of ouroperations in this manner could also require significant additionalexpenditures and strain our management, financial and operational resources.The lack of market acceptance of these efforts, regulatory issues, or ourinability to generate enough revenue from these expanded services or productsto offset their cost could harm our business.

 

**Competition in the market for onlinedistribution of insurance is intense, and if we are unable to competeeffectively with current competitors or new competitors that enter the market,the fees paid to us by participating insurance companies may fall, the feescharged by online companies with which we have strategic relationships mayrise, and our market share may suffer**

 

The online insurance distribution market is a newindustry and, like the broader electronic commerce market, is both rapidlyevolving and highly competitive. Increased competition, particularly bycompanies offering online insurance distribution, could reduce the fees we areable to charge our participating insurance companies or increase the fees weare required to pay to online companies with which we have strategicrelationships, resulting in reduced margins or loss of market share, any ofwhich could harm our business. In addition, our current and future competitorsmay 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, we may not be able to maintain or growconsumer traffic to our website and our base of participating insurancecompanies, our competitors may grow faster than we do, or companies with whomwe have strategic relationships may discontinue their relationships with us,any of which would harm our business.

 

**If our participating insurancecompanies or our insurance agency do not continue to provide high qualityproducts and service to consumers, our brand will be harmed and our ability toattract consumers to our website will be limited**

 

Our ability to maintain a positive recognition of ourbrand depends in part on the quality of the products and services consumersreceive from our participating insurance companies or our insurance agency,including timely response to requests for quotes or coverage.

 

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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. We have from time to time received complaintsfrom consumers who have not received a timely response to a request for aninsurance quote. Although we have taken steps to increase responsiveness toconsumer requests, these steps and/or proposed methods may not be successful.In addition, if any of our major participating insurance companies were todiscontinue their business, be downgraded by insurance company rating servicesor be financially harmed by trends in the insurance industry, our brand may beharmed.

 

**Our plan to expand our onlineinsurance agency operations will require significant resources and we may notbe able to generate sufficient revenues to recover our expenses**

 

Since October 1999, InsWeb has been operating anonline insurance agency business. Our online agency receives a commission onthe sale and renewal of the automobile insurance polices sold though itsoffices. Our plan to expand our online agency operations requires that weattract and retain highly skilled sales agents and customer care personnel. Weface competition from other agencies and insurance companies for these agents.In addition, we will need additional carriers to appoint us as an agent and payus commissions. Although the agency infrastructure is already in place,integration of additional carriers into our online agency operations may takemore time and be more expensive than we project. If we are unable to implementour expansion in a timely and cost-effective manner, we may not be able torecover our costs and our business will be harmed.

 

**Because a limited number of customersaccount for a majority of our revenues, the loss of a single customerrelationship could result in a substantial drop in our revenues**

 

Revenues from Amica, GE Financial Assurance and AIGaccounted for approximately 11%, 11%, and 10%, respectively, of our revenues in2001. Revenues from State Farm, AIG, and GE Financial Assurance accounted forapproximately 14%, 11% and 9%, respectively, of our revenues in 2000, andrevenues from State Farm, AIG and American Family accounted for approximately31%, 11% and 11%, respectively, of our revenues in 1999. In May 2000,State Farm discontinued participating in InsWeb’s marketplaces for automobile,term life, homeowners, condominium and renters insurance.  Should one or more of our other key insurancecompany partners cease to participate in our online marketplace, change itsunderwriting criteria or geographic coverage in a way that reduces theproportion of consumers that are offered quotes from that insurance company, orsuffer a significant decline in its ratings, our operating results could bematerially harmed. Because of the broad market presence of some of ourparticipating insurance companies, we expect to continue to generate asubstantial portion of our revenues from a limited number of insurancecompanies for the foreseeable future. Although InsWeb continually seeks newcarriers to participate in the online marketplace, we may be unable to add anynew carriers.

 

**In most jurisdictions, we rely on theparticipation of a limited number of insurance companies on our onlinemarketplace, and the loss of any of these insurance companies could make ouronline marketplace less attractive to consumers**

 

Consumer demand for the services offered on ourwebsite in any jurisdiction is substantially dependent upon the participationof competing brand-name insurance companies offering competitive quotes for agiven insurance product in that jurisdiction. Accordingly, the success of ourbusiness depends on our ability to attract and retain well-known insurancecompanies to participate in our marketplace. Although we currently haverelationships with a significant number of insurance companies overall, inindividual jurisdictions where competing quotes for comparable products areavailable on our online marketplace, the number of companies offering quotesranges from one to 15. If we are unable to increase the number of insurancecompanies that participate in our online marketplace, particularly in thejurisdictions where we currently offer comparable insurance products from onlythree or fewer insurance companies, we may not be able to attract additionalconsumers or may lose our existing consumers to other online competitorsoffering a wider variety of insurance companies. At March 31, 2002, therewere 15 jurisdictions in which three or fewer insurance companies were offeringautomobile insurance quotes on our online marketplace. No automobile insurancequotes are available in New Jersey, and as of March 31, 2002, there wasone jurisdiction in which only one insurance company is offering automobile quoteson our online marketplace. If any insurance company participating in a numberof jurisdictions discontinued or significantly reduced its participation in ouronline marketplace, the attractiveness of the marketplace to consumers in thesejurisdictions would be greatly diminished.

 

In addition, we believe that there is a general trendtoward consolidation in the insurance industry. In the jurisdictions where wecurrently offer comparable insurance products from three or fewer insurancecompanies, the loss of one or more of these companies, whether due to industryconsolidation or otherwise, could materially reduce the selection of insurancecompanies available to consumers on our website, thereby substantially reducingthe attraction of our online marketplace to consumers.

 

**We may have difficulty integratingnew insurance companies into our online marketplace or agency operations, whichcould harm our ability to offer improved comparison-shopping opportunities andthus limit the attractiveness of our service to consumers**

 

Integration of an insurance company into our onlinemarketplace requires a significant commitment of time and resources on our partand on the part of the insurance company, and is a technologically difficultprocess. This integration process typically takes from three to six months tocomplete and typically requires us to expend between 160 and 2,000 man-hours.To develop company–sponsored quotes for consumers, the integrationrequires either the development of a customized interface with the carrier’sown rating system, accessing a third–party rating engine of the carrier’schoice, or adding the carrier’s rating information into InsWeb’s proprietaryrating engines. Though integration into our agency operations may require fewerresources to implement than integration of an insurance company into our online

 

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marketplace, potential participating insurance companies may not bewilling to invest the time and resources necessary to achieve this integration,or we may not be able to overcome the technological difficulties associatedwith, or devote the time and resources necessary to, successfully integrate theinsurance company into our online marketplace or our agency operations.

 

**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 have an exclusive relationship with any ofthe insurance companies whose insurance products are offered on our onlinemarketplace, and thus, consumers may obtain quotes and coverage from theseinsurance companies without using our website. Our participating insurancecompanies offer their products directly to consumers through insurance agents,mass marketing campaigns or through other traditional methods of insurancedistribution. These insurance companies can also offer their products andservices over the Internet, either directly to consumers or through one or moreof our online competitors, or both. In addition, most of our agreements withour participating insurance companies are cancelable at the option of eitherparty upon 90 days’ notice or less. We have experienced, and expect to continueto experience, reductions in the level of participation in our marketplace orcomplete termination by participating insurance companies. These reductions inparticipation, terminations, or an inability to attract additional insurancecompanies to our marketplace could materially affect our revenues and harm ourbusiness.

 

**The outcome and impact of litigationwith our former health insurance provider is uncertain**

 

In February 2001, InsWeb temporarily suspendedits online health insurance quoting services due to the decision byeHealthInsurance, formerly InsWeb’s exclusive provider of online healthinsurance quotes, to unilaterally terminate the relationship. InApril 2000, the two companies signed a two-year online distributionagreement by which eHealthInsurance became the exclusive provider of individualhealth, small–group health and Medicare supplement insurance quotes toInsWeb’s users through a co-branded website. In February 2001,eHealthInsurance disabled the co-branded website and filed suit in the U.S.District Court for the Northern District of California alleging InsWeb’sfailure to perform its obligations under the agreement. In March 2001,eHealthinsurance amended its suit to add allegations that InsWeb interferedwith its business relationships. The complaint as amended seeks unspecifiedcompensatory and punitive damages. InsWeb filed a counterclaim inMarch 2001 alleging that eHealthInsurance wrongfully terminated thelinking agreement and pursued a course of conduct aimed at damaging InsWeb’sbusiness. The outcome of the lawsuit is uncertain. Even if InsWeb is successfulin its counterclaim and receives a significant judgment at trial, it may bedifficult to collect. Moreover, our business would be harmed if a significantportion of our assets would have to be used to satisfy an adverse judgment, andan adverse judgment could damage our reputation and make it more difficult tomaintain or expand our business relationships. Although InsWeb maintainscustomary types of insurance, these policies may not provide adequate coveragefor the types of claims asserted by eHealthInsurance.

 

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

 

A class action lawsuit was filed on December 5, 2001in the United States District Court for the Southern District of New York onbehalf of purchasers of InsWeb common stock alleging violations of federalsecurities laws. The case is brought purportedly on behalf of all persons whopurchased InsWeb common stock from July 22, 1999 through December 6, 2000. Thecomplaint names as defendants InsWeb, certain officers and directors, and threeunderwriters for InsWeb’s initial public offering in July 1999.  The complaint alleges violations of theSecurities Act of 1933 and the Securities Exchange Act of 1934, on the groundsthat the prospectus incorporated in the registration statements for theoffering failed to disclose, among other things, that (i) the underwriters hadsolicited and received excessive and undisclosed commissions from certaininvestors in exchange for which the underwriters allocated to those investorssubstantial blocks of the stock sold in the initial public offering, and (ii)the underwriters had entered into agreements with customers whereby theunderwriters agreed to allocate shares of the stock sold in the initial publicoffering to those customers in exchange for which the customers agreed topurchase additional shares of InsWeb stock in the aftermarket at pre-determinedprices that were above the initial public offering price. No specific damagesare claimed. However, InsWeb believes that the allegations against InsWeb andits current and former officers and directors are without merit and intends tocontest them vigorously. The litigation is in the preliminary stage, and InsWebcannot predict its outcome. The litigation process is inherently uncertain. Anunfavorable outcome could have a material adverse effect on InsWeb’s financialcondition, results of operations or cash flows.

 

**Traffic on our website is heavilydependent on our online relationships. These relationships may not generatesufficient revenues to justify the fees we pay to online companies. Further,our consumer traffic may decline in the event an online relationship isunsuccessful**

 

We rely on relationships with a variety of Internetportals, financial institutions, and other online companies to attractconsumers to our website. In a typical arrangement, the online company includesa “link” on its website on which a user can click to jump to our website or toa site that we operate under the online company’s name; as part of thearrangement, we typically pay the online company a portion of the resultingtransaction fees and in some cases a fixed fee. These relationships may notcontinue to generate a substantial amount of new traffic on our website, or therevenues generated by these relationships may be insufficient to justify ourpayment obligations. We have experienced occasional fluctuations in the trafficfrom our online partners, often as a result of redesigns of their websites.Furthermore, the value of these relationships is based on the continuedpositive market presence, reputation and growth of these online companies’websites and services. Any decline in the market presence, business orreputation of these online companies’ websites and services will reduce thevalue of these relationships to us and could harm our business.

 

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We have entered into significant marketingarrangements with Yahoo! Inc., MSN and AOL. For the years endedDecember 31, 2001, 2000 and 1999, we received approximately 32.2%, 24.5%and 10.1% of our website traffic from these online relationships, respectively.  For the three months ended March 31, 2002 wereceived approximately 13.6% of our traffic from these onlinerelationships.  Although we are not ableto determine the revenue attributed to each of these relationships withprecision, we estimate that traffic from these relationships accounted for7.8%, 17.2% and 2.7% of our revenues for the year ended December 31, 2001,2000 and 1999, respectively. For the three months ended March 31, 2002, weestimate that traffic from these relationships accounted for 13.3% of ourrevenues.  In January 2001,we enteredinto an agreement with Intuit Inc under which InsWeb serves as the exclusiveaggregator of online consumer insurance services for Quicken.com®,QuickenInsurance and certain Quicken consumer desktop products. We did notrenew our agreement with MSN for 2002, and our status as exclusive provider toYahoo! and AOL was converted to non–exclusive, effective November 1,2001 and January 1, 2002, respectively. Our ability to increase ourrevenues will depend, in part, on our ability to generate increased traffic toour through these significant online relationships.

 

Most of our relationships with online companies,excluding Yahoo!, MSN, Lycos, and AOL, are terminable by either party on 30 to 90 days’ notice. We may not beable to negotiate or renew marketing agreements with online companies on termsthat are acceptable to us. The termination, non-renewal or renewal onunfavorable terms of a relationship from which we generate significant trafficto our website would harm our business. If the recent trend of failing onlinecompanies continues, the traffic currently being received as well as theability to attract new consumer traffic to our site could be harmed.Additionally, an online company’s failure to maintain efficient anduninterrupted operation of its computer and communications hardware systemswould likely reduce the amount of traffic we receive at our site, harming ourbusiness.

 

**Laws and regulations that govern theinsurance industry could expose us, or our participating insurance companies,our officers, or agents with whom we contract, to legal penalties if we fail tocomply, and could require changes to our business**

 

We perform functions for licensed insurance companiesand are, therefore, required to comply with a complex set of rules andregulations that often vary from state to state. If we fail to comply withthese rules and regulations, we, an insurance company doing business with us,our officers, or agents with whom we contract, could be subject to varioussanctions, including censure, fines, a cease-and-desist order or otherpenalties. This risk, as well as changes in the regulatory climate or theenforcement or interpretation of existing law, could expose us to additionalcosts, including indemnification of participating insurance companies for theircosts, and could require changes to our business or otherwise harm ourbusiness. Furthermore, because the application of online commerce to theconsumer insurance market is relatively new, the impact of current or futureregulations on InsWeb’s business is difficult to anticipate.

 

**The Gramm-Leach-Bliley Act may alterthe traditional structure of insurance regulation and impose new or additionallegal requirements on our business**

 

The November 1999 passage of the Gramm–Leach–BlileyAct (S.900) increased the potential for significant changes in the structureand regulation of the insurance industry. Traditionally, regulation ofinsurance has been almost exclusively the province of the states, includingregulation of sales practices, underwriting requirements and claims payments.Moreover, with limited exceptions, securities firms and banking institutionshistorically were prohibited from engaging in the business of insurance, andwere regulated by federal agencies. The Gramm–Leach–Bliley Acteliminated these legislative barriers between segments of the financialservices industry. Although insurance will still be regulated primarily by thestates, insurance entities that become part of a financial services institutionmay be indirectly affected by the federal regulatory requirements pertaining tobanks or securities firms.

 

**Our intended expansion of ourbusiness, including, in particular, our agency activities, will subject us toadditional regulations which may delay or prevent our expansion and harm ourbusiness**

 

Over time, we intend to expand our operations toinclude new products and services and to offer existing and new products in newjurisdictions, which may require us to comply with additional laws andregulations. If we fail to adequately comply with these laws and regulations,our ability to offer some of our products or services in a particularjurisdiction could be delayed or prevented and our business could be harmed.Compliance with these laws and regulations and those of other jurisdictionsinto which we expand may require us to obtain appropriate business licenses,make necessary filings and obtain necessary bonds, appoint foreign agents andmake periodic business reports.

 

**If we are unable to safeguard thesecurity 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 significant barrier to electronic commerce andcommunications is the secure transmission of personally identifiableinformation of Internet users as well as other confidential information overpublic networks. If any compromise or breach of security were to occur, itcould harm our reputation and expose us to possible liability. A party who is ableto circumvent our security measures could misappropriate proprietaryinformation or cause interruptions in our operations. We may be required tomake significant expenditures to protect against security breaches or toalleviate problems caused by any breaches. To date, we have experienced nobreaches in our network security. We rely on encryption and authenticationtechnology licensed from third parties to provide the security andauthentication necessary to effect secure transmission of confidential information,such as names, addresses, Social Security and credit card numbers, user namesand passwords and insurance company rate information. Advances in computercapabilities, new discoveries in the field of cryptography, or other events ordevelopments could result in a compromise or breach of the algorithms we use toprotect consumers’ and

 

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insurance companies’ confidential information.

 

**Uncertainty in the marketplaceregarding the use of Internet users’ personal information, or proposedlegislation limiting such use, could reduce demand for our services and resultin increased expenses**

 

Concern among consumers and legislators regarding theuse of personal information gathered from Internet users could createuncertainty in the marketplace. This could reduce demand for our services,increase the cost of doing business as a result of litigation costs orincreased service delivery costs, or otherwise harms our business. Legislationhas been proposed at both the federal and state levels that would limit theuses of personally identifiable information of Internet users gathered onlineor require online services to establish privacy policies. In addition, theFederal Trade Commission has adopted regulations affecting the informationgathering practices of online companies, and it has brought suit againstseveral high profile companies for failing to adhere to the privacy policiesposted on their websites. Many state insurance codes limit the collection and useof personal information by insurance companies, agents, or insurance serviceorganizations. Failure to adhere to the growing body of privacy regulationscould result in administrative actions or private litigation and harm ourbusiness.

 

**System failures could reduce or limittraffic on our website and harm our ability to generate revenue**

 

Since launching our online marketplace, we haveexperienced occasional minor system failures or outages that have resulted inthe online marketplace being out of service for a period ranging from severalminutes to three hours while our technicians brought backup systems online. Wemay experience further system failures or outages in the future that coulddisrupt the operation of our website and could harm our business. Our revenuesdepend in large part on the volume of traffic on our website and, moreparticularly, on the number of insurance quotes generated by our website inresponse to consumer inquiries. Accordingly, the performance, reliability andavailability of our website, quote–generating systems and networkinfrastructure are critical to our reputation and our ability to attract a highvolume of traffic to our website and to attract and retain participatinginsurance companies. Moreover, we believe that consumers who have a negativeexperience with an electronic commerce website may be reluctant to return tothat site. Thus, a significant failure or outage affecting our systems couldresult in severe long-term damage to our business.

 

**Our website may not perform at levelsthat are satisfactory to consumers**

 

We are continually enhancing and expanding ourtechnology, quote generating systems, network infrastructure and othertechnologies to accommodate the volume of traffic on our website. We may beunsuccessful in these efforts or we may be unable to accurately project therate or timing in the volume of traffic on our website. In addition, we cannotpredict whether additional network capacity will be available from third partysuppliers, as we need it. Also, our network or our suppliers’ networks might beunable to timely achieve or maintain a sufficiently high capacity of datatransmission to timely process orders or effectively download data, especiallyif our website traffic increases. Our failure to achieve or maintain highcapacity data transmission could significantly reduce consumer demand for ourservices.

 

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

 

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

 

**We may experience technologicalproblems or service interruptions with individual insurance companies, whichcould harm the quality of service on our website**

 

Several of our participating insurance companies havechosen a technical solution that requires that our Web 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. A malfunction in an insurancecompany’s computer system or in the Internet connection between our Web serversand the insurance company’s system, or an excess of data traffic on thatsystem, could result in a delay in the delivery of e-mail quotes or could causean insurance company that provides instant quotes to go offline until theproblem can be remedied. Moreover, the malfunction could cause the carrier todispute the number of leads it received from InsWeb. Further, a computermalfunction could cause an insurance company to quote erroneous rates, in whichcase the insurance company would be required to take itself offline until themalfunction can be corrected. Any technological problems with or interruptionof communications with an insurance company’s computer systems could materiallyreduce the number of competing insurance companies available to provide quotes,and therefore the level of service perceived by consumers, on our onlinemarketplace.

 

 

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**We rely on the services of ourexecutive officers and other key personnel, whose knowledge of our business andthe insurance**

**industry and technical expertisewould be extremely difficult to replace**

 

Our future success is substantially dependent on the continuedservices and continuing contributions of our senior management and other keypersonnel, particularly Hussein A. Enan, our Chairman and Chief ExecutiveOfficer; and Mark P. Guthrie, our President and Chief Operating Officer. Theloss of the services of any of our executive officers or other key employeescould harm our business.

 

We have no long-term employment agreements with any ofour key personnel other than Mr. Enan, whose employment agreement expires inJuly 2002. We maintain a $2 million life insurance policy on Mr. Enan andMr. Guthrie that names us as the beneficiary, but maintain no similar insuranceon any of our other key employees. Additionally, InsWeb granted stock optionsas incentives to executive officers and new employees, including Mr. Guthrie,and certain other key personnel. As the value of these incentives are highlydependent on an increase in the market price of our common stock, we may beunable to retain such key employees, nor retain or recruit other officers andkey employees in the future.

 

**Because of intense competition forpersonnel, we may not be able to recruit or retain necessary personnel, whichcould slow the process of adding new insurance companies to our website orotherwise harm our business**

 

Our future success depends on our continuing abilityto attract, retain and motivate highly skilled employees, particularly withrespect to technology development and implementation, including integration ofinsurance companies into our online marketplace. If we are not able to attractand retain new personnel, particularly within our technology development andimplementation team, our business will be harmed. The implementation of newinsurance companies on our site is a technologically complex and labor–intensiveprocess. Accordingly, any difficulty we face in attracting and retainingtalented development and implementation personnel could slow the process ofadding new insurance companies to our online marketplace and therefore limitour ability to increase the attractiveness of our services to consumers. Ascompetition for personnel is intense, we may be unable to retain our keyemployees or attract, assimilate or retain other highly qualified employees inthe future. We have from time to time experienced, and we may experience in thefuture, difficulty in hiring and retaining employees with appropriatequalifications.

 

**If the Internet does not continue todevelop and reliably support the demands placed on it by electronic commerceand other high volume applications, our business will suffer**

 

The Internet may not become a viable medium forcommerce or comparison insurance shopping for a number of reasons, includingpotentially inadequate development of the necessary network infrastructure ordelayed development of enabling technologies and performance improvements. Ifthe Internet continues to experience significant growth in the number of users,levels of traffic or networks’ capacities for transmitting large amounts ofdata, the Internet’s infrastructure may not be able to support the demandsplaced upon it. The Internet has experienced a variety of outages and otherdelays as a result of damage to portions of its infrastructure, and it couldface additional outages and delays in the future. These outages and delayscould reduce the level of traffic and therefore the number of consumerinsurance inquiries on our website. In addition, the Internet could lose itsviability due to delays in the development or adoption of new standards andprotocols required to handle increased levels of Internet activity, or due toincreased governmental regulation. Changes in or insufficient availability oftelecommunications services to support the Internet could also result in slowerresponse times and reduced use of the Internet.

 

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

 

The laws governing the Internet remain largelyunsettled, even in areas where there has been some legislative action.Furthermore, the growth and development of the market for electronic commercemay prompt the enactment of more stringent consumer protection laws that mayimpose additional burdens on companies conducting business online. The adoptionof additional laws or regulations may inhibit the growth of the Internet as amedium for commerce and comparison insurance shopping, which could, in turn,decrease demand for our services, increase our cost of doing business, orotherwise harm our business. In addition, applicability to the Internet ofexisting laws governing issues including property ownership, copyrights andother intellectual property issues, taxation, libel and personal privacy isuncertain. The vast majority of these laws was adopted prior to the advent ofthe Internet and related technologies and, as a result, do not contemplate oraddress the unique issues of the Internet and related technologies.

 

**Any acquisitions that we undertakecould be difficult to integrate, disrupt our business, dilute stockholder valueand harm our operating results**

 

We may acquire or make investments in complementarybusinesses, technologies, services or products if appropriate opportunitiesarise. The process of integrating any acquired business, technology, service orproduct into our business and operations may result in unforeseen operatingdifficulties and expenditures. Integration of an acquired company also mayconsume much of our management’s time and attention that would otherwise beavailable for ongoing development of our business. Moreover, the anticipatedbenefits of any acquisition may not be realized. We may be unable to identify,negotiate or finance future acquisitions successfully, or to integratesuccessfully any acquisitions with our current business. Future acquisitions couldresult in potentially dilutive issuances of equity securities or the incurrenceof debt, contingent liabilities or amortization expenses related to goodwilland other intangible assets, any of which could harm our business.

 

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**We may be unable to protect ourintellectual property rights**

 

We regard our intellectual property as critical to oursuccess. We rely on trademark, copyright and trade secret laws to protect ourproprietary rights. We have registered the INSWEB mark in the United States,Japan, France, Germany, South Korea, Japan and the United Kingdom andapplications are pending in several other countries. Other United States andworldwide trademark applications include, but are not limited to, eAgent,InsWeb.com, Powered by InsWeb, and Where You and Your Insurance Really Click.We have patent applications on file in the United States. Our trademarkregistration and patent applications may not be approved or granted, or, ifgranted, may be successfully challenged by others or invalidated throughadministrative process or litigation. Notwithstanding these laws, we may beunsuccessful in protecting our intellectual property rights or in obtainingpatents or registered trademarks for which we apply.

 

**We may be subject to claims forinfringement of intellectual property, with or without merit, which could becostly to defend or settle**

 

We may from time to time be subject to claims ofinfringement of other parties’ proprietary rights or claims that our owntrademarks, patents or other intellectual property rights are invalid. We havebeen subject to infringement claims in the ordinary course of business,including claims of alleged infringement of the patent and trademark rights ofthird parties by companies and us with which we have business relationships.Any claims of this type, with or without merit, could be time-consuming todefend, result in costly litigation, divert management attention and resourcesor require us to enter into royalty or license agreements. License agreementsmay not be available on reasonable terms, if at all, and the assertion orprosecution of any infringement claims could 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 have incorporated technology developed by thirdparties into our online marketplace, and we will continue to incorporate third–partytechnology in our future products and services. We have limited control overwhether or when these third–party technologies will be developed orenhanced. If a third–party fails to timely develop, license or supporttechnology necessary to our services, market acceptance of our onlinemarketplace could be harmed.

 

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

 

The trading price of our common stock has been highlyvolatile and may be significantly affected by factors including actual oranticipated fluctuations in our operating results, new products or newcontracts by us or our competitors, loss of key customers, conditions andtrends in the electronic commerce and insurance industries, changes infinancial estimates by securities analysts, general market conditions and otherfactors. The trading prices of many Internet stocks have experienced extremeprice and volume fluctuations. These fluctuations often have been unrelated ordisproportionate to the operating performance of these companies. Thesefluctuations may continue and could harm our stock price. Any negative changein the public’s perception of the prospects of Internet or electronic commercecompanies could also depress our stock price regardless of our results.

 

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

 

Provisions of Delaware law and our certificate ofincorporation and bylaws could make more difficult the acquisition of us bymeans of a tender offer, a proxy contest, or otherwise, and the removal ofincumbent officers and directors.

 

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

 

There have been no material changes to the Company’sdisclosures related to certain market risks as reported under Part II, Item 7A,“Quantitative and Qualitative Disclosures About Market Risk,” in the AnnualReport of InsWeb to the U.S. Securities and Exchange Commission on Form 10-Kfor the year ended December 31, 2001.

 

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**PARTII:  OTHER INFORMATION**

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

 

(a)    Exhibit

 
| **Exhibit Number** |   | **Description  of Document**                                                                                            |
|--------------------|--------|-------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                    |
| 2.3†          |   | Amendment to License and Distribution Agreement by  and between Registrant and Intuit Inc., dated as of March 28, 2002. |
|               |   |                                                                                                                    |
| (b)                |   | Reports on Form 8-K: None                                                                                               |

 

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†Confidential treatment has been granted as to a portion of thisExhibit.

 

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SIGNATURE

 

In accordance with the requirements of the Securities Exchange Act of1934, the registrant has caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|   | Dated: May 8, 2002 | **INSWEB CORPORATION  (Registrant)** |
|--------|--------------------|--------------------------------------|
|   |               |                                 |
|   |               |                                 |
|   |               | /s/ William D. Griffin               |
|   |               |                                 |   |
|   |               | William D. Griffin                   |
|   |               | Chief Financial Officer              |

 

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