** **

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-Q**

 
| **x**                                                                                                         | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**       |
|---------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                                                                                    |
| **For the quarterly period ended September 30, 2007**                                                         |
| ** **                                                                                                    |
| **Or**                                                                                                        |
| ** **                                                                                                    |
| **o**                                                                                                         | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| ** **                                                                                                    |
| **For the transition period from       to      ** |
| ** **                                                                                                    |
| **Commission file number 0-26083**                                                                            |

 

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**INSWEBCORPORATION**

(Exact name of Registrant as specified in itscharter)

 

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

 

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

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer (see definition of “largeaccelerated filer and accelerated filer” in Rule 12b-2 of the ExchangeAct).

Large Accelerated Filer o  AcceleratedFiler o  Non-AcceleratedFiler x

Indicate by check mark whether the registrant is a shell company (asdefined by Rule 12b-2 of the Exchange Act).

Yes o  No x

 

The number of outstanding shares of theRegistrant’s Common Stock, par value $0.001 per share, on October 31, 2007 were4,528,720 shares.

 

 

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**FORM 10-Q**

**INSWEB CORPORATION**

**INDEX**

 
| **PART  I**    | **FINANCIAL INFORMATION**                                                                                         | ** ** |
|----------------|-------------------------------------------------------------------------------------------------------------------|------------|
| ** **     | ** **                                                                                                        | ** ** |
| ITEM 1:        | Financial Statements  (unaudited)                                                                                 |       |
|           |                                                                                                              |       |
|           | Condensed Consolidated Balance Sheets as of September  30, 2007 and December 31, 2006                        |       |
|           |                                                                                                              |       |
|           | Condensed Consolidated Statements of Operations for  the three and nine months ended  September 30, 2007 and 2006 |       |
|           |                                                                                                              |       |
|           | Condensed Consolidated Statements of Cash Flows for  the nine months ended September 30, 2007 and 2006            |       |
|           |                                                                                                              |       |
|           | Notes to  Condensed Consolidated Financial Statements                                                             |       |
|           |                                                                                                              |       |
| ITEM 2:        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                       |       |
|           |                                                                                                              |       |
| ITEM 3:        | Quantitative  and Qualitative Disclosures About Market Risk                                                       |       |
|           |                                                                                                              |       |
| ITEM 4T:       | Controls and  Procedures                                                                                          |       |
|           |                                                                                                              |       |
| **PART  II**   | **OTHER INFORMATION**                                                                                             | ** ** |
| ** **     | ** **                                                                                                        | ** ** |
| ITEM 1:        | Legal Proceedings                                                                                                 |       |
|           |                                                                                                              |       |
| ITEM 1A:       | Risk  Factors                                                                                                     |       |
|           |                                                                                                              |       |
| ITEM 4:        | Submission of  Matters to a Vote of Security Holders                                                              |       |
|           |                                                                                                              |       |
| ITEM 6:        | Exhibits                                                                                                          |       |
|           |                                                                                                              |       |
| Signature      |                                                                                                              |
|           |                                                                                                              |       |
| Certifications |                                                                                                              |
|                |                                                                                                                   |            |  |

 

2

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

                                                             

**ITEM 1.       FINANCIAL STATEMENTS**

 

 

**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 

*(in thousands)*

*(unaudited)*

 
| ** **                                      | ** ** | **September  30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **Assets**                                      |       |                     |       |                        |       |
| Current assets:                                 |       |                     |       |                        |       |
| Cash and cash equivalents                       |       | $                        | 8,491      |                        | $          | 6,750 |   |
| Accounts receivable, net                        |       | 5,104                    |       | 2,804                       |       |
| Prepaid expenses and other current assets       |       | 448                      |       | 398                         |       |
| Total current assets                            |       | 14,043                   |       | 9,952                       |       |
| Property and equipment, net                     |       | 284                      |       | 389                         |       |
| Other assets                                    |       | 114                      |       | 115                         |       |
| Total assets                                    |       | $                        | 14,441     |                        | $          | 10,456 |   |
|                                            |       |                     |       |                        |       |
| **Liabilities and stockholders’ equity**   |       |                     |       |                        |       |
| Current liabilities:                            |       |                     |       |                        |       |
| Accounts payable                                |       | $                        | 2,727      |                        | $          | 2,248 |   |
| Accrued expenses                                |       | 2,916                    |       | 2,672                       |       |
| Deferred revenue                                |       | 199                      |       | 245                         |       |
| Total current liabilities                       |       | 5,842                    |       | 5,165                       |       |
|                                            |       |                     |       |                        |       |
| Commitments and  contingencies                  |       |                     |       |                        |       |
|                                            |       |                     |       |                        |       |
| Stockholders’ equity:                      |       |                     |       |                        |       |
| Common stock                                    |       | 8                        |       | 7                           |       |
| Paid-in capital                                 |       | 205,805                  |       | 203,578                     |       |
| Treasury stock                                  |       | (6,334                   | )          | (6,334                      | )          |
| Accumulated deficit                             |       | (190,880                 | )          | (191,960                    | )          |
| Total stockholders’ equity                 |       | 8,599                    |       | 5,291                       |       |
| Total liabilities and stockholders’ equity |       | $                        | 14,441     |                        | $          | 10,456 |   |

 

See accompanying notes.

 

3

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**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

 

*(in thousands, except per share amounts)*

*(unaudited)*

 
| ** **                                                   | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                   | ** ** | **2007**                              | ** ** | **2006**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues:                                                    |       |                                  |       |                                 |       |   |   |   |   |
| Transaction fees                                             |       | $                                     | 9,167      |                                 | $          | 7,421 |   | $ | 25,273 |   | $ | 22,415 |   |
| Other                                                        |       | 64                                    |       | 84                                   |       | 197 |   | 262 |   |
| Total revenues                                               |       | 9,231                                 |       | 7,505                                |       | 25,470 |   | 22,677 |   |
|                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Operating expenses:                                          |       |                                  |       |                                 |       |   |   |   |   |
| Direct marketing                                             |       | 5,899                                 |       | 5,198                                |       | 15,024 |   | 15,300 |   |
| Sales and marketing                                          |       | 1,251                                 |       | 1,896                                |       | 4,056 |   | 5,927 |   |
| Technology                                                   |       | 691                                   |       | 1,269                                |       | 2,344 |   | 3,738 |   |
| General and administrative                                   |       | 1,034                                 |       | 829                                  |       | 3,259 |   | 3,080 |   |
| Total operating expenses                                     |       | 8,875                                 |       | 9,192                                |       | 24,683 |   | 28,045 |   |
| Income (loss) from  operations                               |       | 356                                   |       | (1,687                               | )          | 787 |   | (5,368 | ) |
| Interest income                                              |       | 108                                   |       | 92                                   |       | 287 |   | 286 |   |
| Other income                                                 |       | —                                |       | 5                                    |       | 6 |   | 2,048 |   |
|                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Income (loss) before  income taxes                           |       | $                                     | 464        |                                 | $          | (1,590 | ) | $ | 1,080 |   | $ | (3,034 | ) |
|                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Provision for income taxes                                   |       | —                                |       | —                               |       | — |   | — |   |
|                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Net income (loss)                                            |       | $                                     | 464        |                                 | $          | (1,590 | ) | $ | 1,080 |   | $ | (3,034 | ) |
|                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Net income (loss) per  share:                                |       |                                  |       |                                 |       |   |   |   |   |
| Basic                                                        |       | $                                     | 0.10       |                                 | $          | (0.39 | ) | $ | 0.25 |   | $ | (0.74 | ) |
| Diluted                                                      |       | $                                     | 0.08       |                                 | $          | (0.39 | ) | $ | 0.21 |   | $ | (0.74 | ) |
|                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Weighted-Average shares used in computing per share  amounts |       |                                  |       |                                 |       |   |   |   |   |
| Basic                                                        |       | 4,495                                 |       | 4,093                                |       | 4,331 |   | 4,089 |   |
| Diluted                                                      |       | 5,515                                 |       | 4,093                                |       | 5,108 |   | 4,089 |   |

 

See accompanying notes.

 

 

4

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**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

 

*(in thousands)*

*(unaudited)*

 
| ** **                                                                                          | ** ** | **Nine  Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                          | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| Cash flows from operating activities:                                                               |       |                                  |       |   |   |
| Net income (loss)                                                                                   |       | $                                     | 1,080      |   | $ | (3,034 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by  (used in) operating activities: |       |                                  |       |   |   |
| Share-based compensation                                                                            |       | 838                                   |       | 246 |   |
| Depreciation and amortization                                                                       |       | 121                                   |       | 165 |   |
| Net changes in operating assets and liabilities:                                                    |       |                                  |       |   |   |
| Accounts receivable                                                                                 |       | (2,300                                | )          | (631 | ) |
| Prepaid expenses and other current assets                                                           |       | (50                                   | )          | (105 | ) |
| Other assets                                                                                        |       | 1                                     |       | 9 |   |
| Accounts payable                                                                                    |       | 479                                   |       | 949 |   |
| Accrued expenses                                                                                    |       | 244                                   |       | (446 | ) |
| Deferred revenue                                                                                    |       | (46                                   | )          | 57 |   |
| Net cash provided by (used in) operating activities                                                 |       | 367                                   |       | (2,790 | ) |
|                                                                                                |       |                                  |       |   |   |
| Cash flows from investing activities:                                                               |       |                                  |       |   |   |
| Redemptions of short-term investments                                                               |       | —                                |       | 1,462 |   |
| Purchases of short-term investments                                                                 |       | —                                |       | (228 | ) |
| Purchases of property and equipment                                                                 |       | (15                                   | )          | (75 | ) |
| Net cash (used in) provided by investing activities                                                 |       | (15                                   | )          | 1,159 |   |
|                                                                                                |       |                                  |       |   |   |
| Cash flows from financing activities:                                                               |       |                                  |       |   |   |
| Repayments of debt                                                                                  |       | —                                |       | (10 | ) |
| Proceeds from issuance of common stock through stock plans                                          |       | 1,389                                 |       | 42 |   |
| Net cash provided by financing activities                                                           |       | 1,389                                 |       | 32 |   |
| Net increase (decrease) in cash and cash equivalents                                                |       | 1,741                                 |       | (1,599 | ) |
| Cash and cash equivalents, beginning of period                                                      |       | 6,750                                 |       | 9,073 |   |
| Cash and cash equivalents, end of period                                                            |       | $                                     | 8,491      |   | $ | 7,474 |   |

 

See accompanying notes.

 

5

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**INSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

***(unaudited)***

 

**1. Business of InsWeb**

 

                InsWebCorporation operates an online insurance marketplace that enables consumers toobtain multiple insurance quotes for a variety of insurance products, includingautomobile, homeowners and term life. InsWeb’s principal source of revenues is transactionfees from participating insurance providers. These fees are earned, generally,at the time a lead is delivered to a participating insurance provider or agent. In certaininstances, consumers are provided the opportunity to link directly to a thirdparty insurance provider’s website. In these situations, InsWeb will be paid afee for that consumer link or click-through whether or not the consumer completesthe third party company’s online application.

 

InsWeb is subject to allof the risks inherent in the electronic commerce industry and special risksrelated to the online insurance industry. These risks include, but are notlimited to, uncertain economic conditions which could result in lower growthrates, the changing nature of the electronic commerce industry, variations inthe availability and cost of acquiring consumer traffic, unpredictability offuture revenues, reliance on key customers — insurance carriers, agents andother providers — who are themselves subject to volatility in their operatingcycles, and reliance on a third party intermediary who provides leads to localinsurance agents on InsWeb’s behalf. These risks and uncertainties, amongothers, could cause InsWeb’s actual results to differ materially fromhistorical results or those currently anticipated.  In light of the evolving nature of InsWeb’sbusiness to better capitalize on its position as a leading insurance portal,including the current expansion of InsWeb’s agent network program, InsWebbelieves that period-to-period comparisons of its operating results are notnecessarily meaningful and should not be relied upon as an indication of futureperformance. Moreover, there is no assurance that InsWeb will be able toachieve or sustain profitability.

 

                For the three and nine months ended September 30,2007,  InsWeb reported income fromoperations of $0.4 million and $0.8 million, respectively.  InsWebincurred operating losses of $5.8 million in 2006, $6.3 million in 2005, and$9.2 million in 2004 As of September 30, 2007, InsWeb’s accumulated deficit was$190.9 million. At September30, 2007, InsWeb had $8.5 million in cash and cash equivalents.  Historically, InsWeb’s operating activities have consumedsubstantial amounts of cash, cash equivalents and short-term investments ($3.6million in 2006, $5.3 million in 2005, and $8.7 million in 2004) and mayrequire capital in the future. These historical losses and therelated accumulated deficit are a result of the significant costs incurred inthe development of InsWeb’s technology platform, the establishment ofrelationships with insurance companies, their integration with the InsWeb site,and InsWeb’s marketing and sales activities. However, in the event that InsWeb is unable to generate revenuessufficient to offset its costs, the Company may be unable to grow at the ratedesired, which could materially harm its business and financial results, andresult in additional operating losses. In addition, if InsWeb isunable to maintain profitability, the Company may need to seek additionalfinancing to continue its business operations. The Company cannot be certainthat additional financing will be available when required, on favorable termsor at all.

 

**2.**Basis ofPresentation**

 

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

 

Theaccompanying unaudited interim financial statements have been prepared inaccordance with U.S. generally accepted accounting principles for interimfinancial information and with the instructions to Form 10-Q and Rule 10-01 ofRegulation S-X. Accordingly, they do not contain all of the information andfootnotes required by U.S. generally accepted accounting principles for completefinancial statements. In the opinion of management, the accompanying unauditedinterim condensed consolidated financial statements reflect all adjustments,which include only normal recurring adjustments, necessary to present fairlyInsWeb’s financial position as of September 30, 2007 and the results ofoperations and cash flows for the three and nine months ended September 30,2007 and 2006. The financial data and other information disclosed in thesenotes to the condensed consolidated financial statements related to theseperiods are unaudited. The results for the three and nine months endedSeptember 30, 2007 are not necessarily indicative of the results to be expectedfor the year ending December 31, 2007.

 

 

6

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Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and notes thereto included in InsWeb’sAnnual Report on Form 10-K and other information as filed with the Securitiesand Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States have been condensed or omitted pursuantto such rules and regulations. The December 31, 2006 condensed consolidatedbalance sheet was derived from audited financial statements, but does notinclude all disclosures required by accounting principles generally accepted inthe United States. However, the Company believes the disclosures are adequateto make the information presented not misleading.

 

Basicearnings per share is computed using the weighted-average number of shares ofcommon stock outstanding. Diluted earnings per share reflects the potentialdilution that would occur if stock options had been exercised. For the ninemonths ended September 30, 2006, common equivalent shares from stock optionswere excluded from the computation of net loss per share-diluted as theireffect was antidilutive.

 

In July 2006, theFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”)No. 48, *Accounting for Uncertainty inIncome Taxes — An Interpretation of FASB Statement No. 109.* FIN48 clarifies the accounting for uncertainty in income taxes recognized infinancial statements in accordance with Statement of Financial AccountingStandard No. 109, *Accounting for IncomeTaxes.* FIN 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return and provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. InsWeb adopted the provisions of FIN 48 asof January 1, 2007. The adoption of FIN 48 did not have a material impact onInsWeb’s financial statements.

 

**3. Share-Based Payments**

 

The following table setsforth the total share-based compensation expense  relating to the Company’s stock option andstock purchase plans included in the Company’s operating expenses in itscondensed consolidated statements of operations for the three and nine monthsended September 30, 2007 (in thousands):

 
| ** **                              | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **2007**                              | ** ** | **2006**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                    |       |                                  |       |                                 |       |   |   |   |   |
| Technology                              |       | $                                     | 21         |                                 | $          | 11 |   | $ | 70 |   | $ | 21 |   |
| Sales and marketing                     |       | 65                                    |       | 25                                   |       | 179 |   | 96 |   |
| General and administrative              |       | 178                                   |       | 85                                   |       | 589 |   | 129 |   |
| Total share-based  compensation expense |       | $                                     | 264        |                                 | $          | 121 |   | $ | 838 |   | $ | 246 |   |

 

**4. Concentrationof Risk — Significant Customers**

 

Forthe three and nine months ended September 30, 2007, two customers accounted for17% and 16%  and three customersaccounted for 16%, 13% and 12% of total revenues, respectively. For the three and ninemonths ended September 30, 2006, three customers accounted for 19%, 10% and 9%and 17%, 11% and 10% of total revenues, respectively. At September 30, 2007, three customersaccounted for 21%, 14% and 11% of accounts receivable. At December 31, 2006, two customersaccounted for 18% and 12% of accounts receivable.

 

 

7

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**5. Accrued Expenses**

 

Accrued expenses consistof the following (in thousands):

 
| ** **                             | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                   |       |                    |       |                        |       |
| Accrued lease obligations (see Note 7) |       | $                       | 1,325      |                        | $          | 1,563 |   |
| Accrued employee compensation          |       | 341                     |       | 495                         |       |
| Deferred rent                          |       | 396                     |       | 463                         |       |
| Fee sharing partners                   |       | 832                     |       | 93                          |       |
| Other                                  |       | 22                      |       | 58                          |       |
| Total                                  |       | $                       | 2,916      |                        | $          | 2,672 |   |

 

**6. Comprehensive Income (Loss)**

 

Totalcomprehensive income (loss) was as follows (in thousands):

 
| ** **                                                            | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                            | ** ** | **2007**                                   | ** ** | **2006**                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                  |       |                                       |       |                                      |       |   |   |   |   |
| Net income (loss)                                                     |       | $                                          | 464        |                                      | $          | (1,590 | ) | $ | 1,080 |   | $ | (3,034 | ) |
| Other comprehensive income - change in unrealized gain on investments |       | —                                     |       | —                                    |       | — |   | 2 |   |
| Comprehensive income (loss)                                           |       | $                                          | 464        |                                      | $          | (1,590 | ) | $ | 1,080 |   | $ | (3,032 | ) |

 

**7.Commitments and Contingencies**

 

**Leases**

 

InsWeb is contractuallyobligated to make future lease payments on certain formerly occupied facilitiesthrough September 2008. As of September 30, 2007, total future obligationsfor these facilities amounted to $2.5 million; these obligations are offset bytotal contractual future sublease income of approximately $2.2 million.Substantially all future sublease income is due from a sublessee who is atechnology company with a history of operating losses and, therefore, there areinherent risks and uncertainties associated with its future operations and itsability to discharge its obligations through the term of the sublease. In theevent that the sublessee defaults on its obligations under the amendedsublease, InsWeb would be responsible for making the required lease payments tothe landlord through the remaining term of the lease. In connection with thislease and other lease obligations for formerly occupied facilities, InsWeb mustmake assumptions regarding the estimated future sublease income relative tothese facilities. These estimates and assumptions are affected by area-specificconditions such as new commercial development, market occupancy rates andfuture market prices. Based on these assumptions, the Company has recorded anaccrual of $1.3 million as of September 30, 2007 for lease commitments relatedto these formerly occupied facilities, compared to $1.6 million as ofDecember 31, 2006. InsWeb continues to monitor its risk of loss to determinewhether a change in the estimated lease loss accrual may be necessary in thenear term.

 

 

8

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**Securities ClassAction Lawsuit**

 

                Asecurities class action lawsuit was filed on December 5, 2001 in theUnited States District Court for the Southern District of New York, (the “Court”)purportedly on behalf of all persons who purchased our common stock fromJuly 22, 1999 through December 6, 2000. The complaint named asdefendants InsWeb, certain current and former officers and directors, and threeinvestment banking firms that served as underwriters for InsWeb’s initialpublic offering in July 1999. The complaint, as subsequently amended,alleges violations of Sections 11 and 15 of the Securities Act of 1933 andSections 10 and 20 of the Securities Exchange Act of 1934, on the grounds thatthe prospectuses incorporated in the registration statements for the offeringfailed to disclose, among other things, that (i) the underwriters hadsolicited and received excessive and undisclosed commissions from certaininvestors in exchange for which the underwriters allocated to those investorsmaterial portions of the shares of our stock sold in the offerings and(ii) the underwriters had entered into agreements with customers wherebythe underwriters agreed to allocated shares of the stock sold in the offeringto those customers in exchange for which the customers agreed to purchase additionalshares of InsWeb stock in the aftermarket at pre-determined prices. No specificdamages are claimed. Similar allegations have been made in lawsuits relating tomore than 300 other initial public offerings conducted in 1999 and 2000, all ofwhich have been consolidated for pretrial purposes. In October 2002, allclaims against the individual defendants were dismissed without prejudice. InFebruary 2003, the Court dismissed the claims in the InsWeb actionalleging violations of the Securities Exchange Act of 1934 but allowed theplaintiffs to proceed with the remaining claims. In June 2003, theplaintiffs in all of the cases presented a settlement proposal to all of theissuer defendants. Under the proposed settlement, the plaintiffs will dismissand release all claims against participating defendants in exchange for acontingent payment guaranty by the insurance companies collectively responsiblefor insuring the issuers in all the related cases, and the assignment orsurrender to the plaintiffs of certain claims the issuer defendants may haveagainst the underwriters. InsWeb and most of the other issuer defendantsaccepted the settlement proposal.While the court was considering final approval of thesettlement, the Second Circuit Court of Appeals vacated the class certificationof plaintiffs’ claims against the underwriters in six cases designated as focusor test cases. On December 14, 2006, the District Court ordered a stay ofall proceedings in all of the lawsuits pending the outcome of plaintiffs’petition to the Second Circuit for rehearing en banc and resolution of theclass certification issue. On April 6, 2007, the Second Circuit deniedplaintiffs’ petition for rehearing, but clarified that the plaintiffs may seekto certify a more limited class in the District Court. Because of thesignificant technical barriers presented by the Court’s decision, the partieswithdrew the proposed settlement and the plaintiffs filed an amendedcomplaint.  There is no assurance that anew settlement will be negotiated, and then approved. If the settlement is notnegotiated and subsequently approved, InsWeb intends to defend the lawsuitvigorously. The litigation and settlementprocess is inherently uncertain and management cannot predict the outcome,though, if unfavorable, it could have a material adverse effect on InsWeb’sfinancial condition, results of operations and cash flows.

 

**Section16(b) Lawsuit**

 

A lawsuit was filed by ashareholder against InsWeb and its IPO underwriters on October 12, 2007. Thesuit alleges that: 1) theIPO underwriters and unspecified officers, directors, and shareholdersconstituted a “group” that owned in excess of 10% of InsWeb’s outstandingstock; 2) the IPO underwriters were therefore subject to the short swingtrading prohibitions of §16(b); and 3) the IPOunderwriters engaged in purchases and sales, or sales and purchases withinperiods of less than six months in violation of §16(b). The suit seeksdisgorgement of all profits received by the underwriters, with interest andattorneys fees, for transaction in violation of §16(b). InsWeb, as thestatutory beneficiary of any §16(b) recovery, is a nominal defendant in thelawsuit. Similar lawsuits against underwriters of other public companieshave been filed by the same plaintiff and law firm.  The litigation is inthe preliminary stage, and InsWeb cannot predict its outcome; however ifunfavorable, it could have a materialadverse effect on InsWeb’s financial condition, results of operations and cashflows .

 

 

9

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| **ITEM 2.****** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION****AND RESULTS OF  OPERATIONS** |
|-----------------|-----------------------------------------------------------------------------------------------------|

 

*This Quarterly Report on Form 10-Q, and in particularManagement’s Discussion and Analysis of Financial Condition and Results ofOperations, contains “forward-looking statements” with respect to InsWeb’sfuture financial performance. The words or phrases “expects,” “anticipates,” “intends,”“plans,” “believes,” “seeks,” “estimates,” and similar expressions aregenerally intended to identify forward-looking statements. Such forward-lookingstatements are subject to various known and unknown risks and uncertainties,and InsWeb cautions you that any forward-looking information provided by, or onbehalf of, InsWeb is not a guarantee of future performance. Actual resultscould differ materially from those anticipated in such forward-lookingstatements due to a number of factors, some of which are beyond InsWeb’scontrol, including, but not limited to, uncertain economic conditions whichcould result in lower growth rates, fluctuations in revenues, anticipated andunanticipated losses, the unpredictability of consumer shopping and/or buyingbehavior, especially on the internet, potential increases in advertising andmarketing costs on the internet, the rate of adoption of the internet as amedium to acquire new customers by insurance companies and agents, reliance onkey customers, who are themselves subject to volatility in their operatingcycles, reliance on a third party intermediary who provides leads to localinsurance agents on InsWeb’s behalf, competition, risks associated with systemdevelopment and operation risks, management of potential growth and risks ofnew business areas, business combinations, litigation in which InsWeb is aparty, and strategic alliances. These risks and uncertainties, as well as otherrisks and uncertainties, which are described in greater detail in InsWeb’sAnnual Report on Form 10-K for the year ended December 31, 2006 and otherdocuments filed with the Securities and Exchange Commission, could cause InsWeb’sactual results to differ materially from historical results or those currentlyanticipated. All forward-looking statements are based on information availableto InsWeb on the date hereof, and InsWeb assumes no obligation to update suchstatements.*

 

**Overview**

 

InsWeb (the “Company,” “InsWeb,” “we,”“us,” or “our”) operates an online insurancemarketplace that enables consumers to obtain insurance quotes for a variety ofinsurance products, including automobile, homeowners and term life byelectronically matching consumers and insurance providers. We have combinedextensive knowledge of the insurance industry, technological expertise andclose relationships with a significant number of insurance companies to developour integrated online marketplace.

 

For the automobile andhomeowners insurance products, our principal source of revenues is transactionfees from participating insurance providers. While quotes obtained through ouronline insurance marketplace are provided to consumers free of charge, we earnrevenues when a qualified lead is delivered to a participating insuranceprovider or local agent. In certain instances, consumers are provided theopportunity to link directly to a third party insurance provider’s website. Inthese situations, we will be paid a fee for that consumer link or click-throughwhether or not the consumer completes the third party’s online application.

 

For term life insurance,the majority of our revenues prior to April 2007 consisted of commissionsearned by our insurance agency subsidiary, InsWeb Insurance Services, Inc.,upon the sale of a term life insurance policy. We will continue to earncommissions throughout 2007 (in decreasing amounts) even as we wind down theterm life agency book of business. However, an increasing percentage of future revenues from the term lifeinsurance product will be generated by the sale of leads to third parties.

 

For a variety of otherinsurance products, including renters and health insurance, we are paid a feefor the clickthrough of a consumer from our website to a third party’s website.

 

A less significant anddeclining source of revenues for us is development and maintenance fees thatare paid by insurance companies that participate in our insurance marketplace.These fees are included in other revenues.

 

 

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InsWeb has focused its efforts onautomobile insurance, which accounted for approximately 76% of our transactionrevenues in 2006, compared to approximately 79% in 2005. For the nine-monthperiod ending September 30, 2007, automobile insurance accounted for 83% of ourtransaction revenues.  We anticipate thatautomobile insurance will continue to account for a substantial portion of ourrevenues for the foreseeable future.

 

                For the three and nine months ended September 30,2007, we reported operating income of $0.4 million and $0.8 millionrespectively. We incurred operating lossesof $5.8 million in 2006, $6.3 million in 2005, and $9.2 million in 2004, and asof September 30, 2007, our accumulated deficit was $190.9 million. At September 30, 2007, we had $8.5 million in cashand cash equivalents.Historically, our operating activities have consumed substantial amounts of cash, cashequivalents and short-term investments ($3.6 million in 2006, $5.3 million in2005, and $8.7 million in 2004) and may require additional capital in thefuture. These historical losses and the related accumulated deficit are a resultof the significant costs incurred in the development of our technologyplatform, the establishment of relationships with insurance companies, theirintegration with our site, and our marketing and sales activities. As a resultof improvements to our revenue generating activities and reductions in our operatingexpenses, we expect to generate operating income for the year ending December31, 2007. However, in the event that we areunable to generate revenues sufficient to offset our costs, we may be unable togrow at the rate desired, which could materially harm our business andfinancial results, and result in additional operating losses. In addition, if weare unable to maintain profitability, we may need to seek additional financingto continue our business operations. We cannot be certain that additionalfinancing will be available when required, on favorable terms or at all.

 

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**Results of Operations**

 

The following table sets forth statement ofoperations data with the respective percentage change from the comparativeperiod in the prior year (in thousands, except percentages):

 

| ** **                    | ** ** | **Three months ended  September 30,** | ** ** | **Percentage  change from** | ** ** |
|-------------------------------|------------|---------------------------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | **2007**                              | ** ** | **2006**                    | ** ** | **prior period** | ** ** |
| Revenues:                     |       |                                  |       |                        |       |   |   |
|                          |       |                                  |       |                        |       |   |   |
| Transaction fees:             |       |                                  |       |                        |       |   |   |
| Auto insurance                |       | $                                     | 7,995      |                        | $          | 5,549 |   | 44 | % |
| Term life insurance           |       | 611                                   |       | 1,310                       |       | (53 | ) |
| Other insurance offerings     |       | 561                                   |       | 562                         |       | — |   |
|                          |       | 9,167                                 |       | 7,421                       |       | 24 |   |
| Other                         |       | 64                                    |       | 84                          |       | (24 | ) |
|                          |       |                                  |       |                        |       |   |   |
| Total revenues                |       | 9,231                                 |       | 7,505                       |       | 23 |   |
| Operating expenses:           |       |                                  |       |                        |       |   |   |
| Direct marketing              |       | 5,899                                 |       | 5,198                       |       | 13 |   |
| Sales and marketing           |       | 1,251                                 |       | 1,896                       |       | (34 | ) |
| Technology                    |       | 691                                   |       | 1,269                       |       | (46 | ) |
| General and administrative    |       | 1,034                                 |       | 829                         |       | 25 |   |
|                          |       |                                  |       |                        |       |   |   |
| Total operating expenses      |       | 8,875                                 |       | 9,192                       |       | (3 | ) |
|                          |       |                                  |       |                        |       |   |   |
| Income (loss) from operations |       | $                                     | 356        |                        | $          | (1,687 | ) | n/m |   |
|                               |            |                                       |            |                             |            |  |  |  |  |  |

 

 

| ** **                    | ** ** | **Nine months ended  September 30,** | ** ** | **Percentage  change from** | ** ** |
|-------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | **2007**                             | ** ** | **2006**                    | ** ** | **prior period** | ** ** |
| Revenues:                     |       |                                 |       |                        |       |   |   |
|                          |       |                                 |       |                        |       |   |   |
| Transaction fees:             |       |                                 |       |                        |       |   |   |
| Auto insurance                |       | $                                    | 20,972     |                        | $          | 17,239 |   | 22 | % |
| Term life insurance           |       | 2,933                                |       | 3,898                       |       | (25 | ) |
| Other insurance offerings     |       | 1,368                                |       | 1,278                       |       | 7 |   |
|                          |       | 25,273                               |       | 22,415                      |       | 13 |   |
| Other                         |       | 197                                  |       | 262                         |       | (25 | ) |
|                          |       |                                 |       |                        |       |   |   |
| Total revenues                |       | 25,470                               |       | 22,677                      |       | 12 |   |
| Operating expenses:           |       |                                 |       |                        |       |   |   |
| Direct marketing              |       | 15,024                               |       | 15,300                      |       | (2 | ) |
| Sales and marketing           |       | 4,056                                |       | 5,927                       |       | (32 | ) |
| Technology                    |       | 2,344                                |       | 3,738                       |       | (37 | ) |
| General and administrative    |       | 3,259                                |       | 3,080                       |       | 6 |   |
|                          |       |                                 |       |                        |       |   |   |
| Total operating expenses      |       | 24,683                               |       | 28,045                      |       | (12 | ) |
|                          |       |                                 |       |                        |       |   |   |
| Income (loss) from operations |       | $                                    | 787        |                        | $          | (5,368 | ) | n/m |   |

----

n/m — not meaningful

 

12

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**Results ofOperations (continued)**

Thefollowing table sets forth statement of operations data as a percentage oftotal revenues:****

| ** **                     | ** ** | **Three months  ended  September 30,** | ** ** | **Nine months  ended  September 30,** | ** ** |
|--------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                     | ** ** | **2007**                               | ** ** | **2006**                              | ** ** | **2007** | ** ** | **2006** | ** ** |
| Transaction fees:              |       |                                   |       |                                  |       |   |   |   |   |
| Auto insurance                 |       | 86                                     | %          | 74                                    | %          | 82 | % | 76 | % |
| Other insurance                |       | 13                                     |       | 25                                    |       | 17 |   | 23 |   |
| Other                          |       | 1                                      |       | 1                                     |       | 1 |   | 1 |   |
| Total                          |       | 100                                    |       | 100                                   |       | 100 |   | 100 |   |
| Operating expenses:            |       |                                   |       |                                  |       |   |   |   |   |
| Direct marketing               |       | 64                                     |       | 69                                    |       | 59 |   | 68 |   |
| Sales and marketing            |       | 14                                     |       | 25                                    |       | 16 |   | 26 |   |
| Technology                     |       | 7                                      |       | 17                                    |       | 9 |   | 17 |   |
| General and administrative     |       | 11                                     |       | 11                                    |       | 13 |   | 13 |   |
| Total                          |       | 96                                     |       | 122                                   |       | 97 |   | 124 |   |
| Income (loss) from  operations |       | 4                                      | %          | (22                                   | )%         | 3 | % | (24 | )% |

 

Direct marketing(consumer acquisition) metrics and costs and revenue per consumer were asfollows:

 

| ** **                                             | ** ** | **Three months  ended  September 30,** | ** ** | **Nine months  ended  September 30,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| **(in thousands,****except per consumer amounts****)** | ** ** | **2007**                               | ** ** | **2006**                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                   |       |                                   |       |                                  |       |   |   |   |   |
| Direct marketing costs                                 |       | $                                      | 5,899      |                                  | $          | 5,198 |   | $ | 15,024 |   | $ | 15,300 |   |
| Direct marketing costs as a percent of total revenues  |       | 64                                     | %          | 69                                    | %          | 59 | % | 68 | % |
| Number of consumers                                    |       | 1,966                                  |       | 1,514                                 |       | 4,953 |   | 4,588 |   |
| Direct marketing cost per consumer                     |       | $                                      | 3.00       |                                  | $          | 3.43 |   | $ | 3.03 |   | $ | 3.34 |   |
| Total transaction fees per consumer                    |       | $                                      | 4.66       |                                  | $          | 4.90 |   | $ | 5.10 |   | $ | 4.89 |   |

 

Marketplace metricswere as follows:

 

| ** **                                              | ** ** | **Three months  ended  September 30,** | ** ** | **Nine months  ended  September 30,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| **(in  thousands,****except per consumer amounts****)** | ** ** | **2007**                               | ** ** | **2006**                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                    |       |                                   |       |                                  |       |   |   |   |   |
| Auto:                                                   |       |                                   |       |                                  |       |   |   |   |   |
| Transaction revenues                                    |       | $                                      | 7,995      |                                  | $          | 5,549 |   | $ | 20,972 |   | $ | 17,239 |   |
| Number of consumers                                     |       | 1,802                                  |       | 1,359                                 |       | 4,568 |   | 4,161 |   |
| Transaction fees per consumer                           |       | $                                      | 4.44       |                                  | $          | 4.08 |   | $ | 4.59 |   | $ | 4.14 |   |
|                                                    |       |                                   |       |                                  |       |   |   |   |   |
| All Other:                                              |       |                                   |       |                                  |       |   |   |   |   |
| Transaction revenues                                    |       | $                                      | 1,172      |                                  | $          | 1,872 |   | $ | 4,301 |   | $ | 5,176 |   |
| Number of consumers                                     |       | 164                                    |       | 155                                   |       | 385 |   | 427 |   |
| Transaction fees per consumer                           |       | $                                      | 7.15       |                                  | $          |  12.08 |   | $ |  11.17 |   | $ | 12.12 |   |

 

Definitions:

** **
| “Number of consumers”           |   | Represents consumer acquired from marketing  activities.                            |
|-------------------------------------------|--------|-------------------------------------------------------------------------------------|
|                                      |   |                                                                                |
| “Transaction fees per consumer” |   | Represents transaction revenue earned per consumer  who has started an application. |

 

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***TransactionFees******.***Automobile insurance transaction fees(consisting of lead fees and clickthrough fees) increased to $8.0 millionand $21.0 million for the three and nine months ended September 30, 2007,respectively, from $5.5 million and $17.2 million for the comparable periodsin 2006. Theincreases in transaction fees were attributable to improvements to our leadgeneration program and higher click-through fees.These improvements increasedrevenue per auto consumer to $4.44 and $4.59 for the three and nine monthperiods ended September 30, 2007 from $4.08 and $4.14 for the comparableperiods in 2006. Weexpect revenue per auto consumer to decrease slightly in the fourth quarter of2007, due to traditional seasonality. Termlife insurance transaction fees (consisting primarily of agencycommissions and a limited amount of lead fees) decreased to $0.6 million and $2.9 million for the three andnine months ended September 30, 2007, respectively, from $1.3 million and $3.9million for the comparable periods in 2006. The decrease in term life revenuesresulted from the reduction in sales of new term life insurance policiesfollowing our decision in April 2007 to wind-down our term lifeagency in order to focus on more profitable lead generation opportunities. Wecontinue to offer term life insurance products to our consumers through ouronline insurance marketplace using a lead generation model. At the same time,we still continue to earn commission revenues (in diminishing amounts)throughout 2007 as term life applications taken prior to April 2007 are closed.

 

Otherinsurance transaction fees (consisting primarily of homeowners insurance lead fees) were$0.6 million and $1.4 million for the three and nine months September 30,2007, respectively, as compared to $0.6 million and $1.3 million for thecomparable periods in 2006.We expect revenue from thehomeowners insurance marketplace to decrease during the remainder of 2007 dueto seasonality.

 

**Operating Expenses**

 

| ** **                                     | ** ** | **Three months ended  September 30,** | ** ** | **Percentage  change from** | ** ** |
|------------------------------------------------|------------|---------------------------------------|------------|-----------------------------|------------|
| **(in  thousands,****except percentages****)** | ** ** | **2007**                              | ** ** | **2006**                    | ** ** | **prior period** | ** ** |
|                                           |       |                                  |       |                        |       |   |   |
| Operating expenses:                            |       |                                  |       |                        |       |   |   |
| Direct marketing                               |       | $                                     | 5,899      |                        | $          | 5,198 |   | 13 | % |
| Sales and marketing                            |       | 1,251                                 |       | 1,896                       |       | (34 | ) |
| Technology                                     |       | 691                                   |       | 1,269                       |       | (46 | ) |
| General and administrative                     |       | 1,034                                 |       | 829                         |       | 25 |   |
|                                           |       |                                  |       |                        |       |   |   |
| ** **                                     | ** ** | **Nine months ended  September 30,**  |       | **Percentage  change from** |       |
| **(in  thousands,****except percentages****)** | ** ** | **2007**                              | ** ** | **2006**                    | ** ** | **prior period** | ** ** |
|                                           |       |                                  |       |                        |       |   |   |
| Operating expenses:                            |       |                                  |       |                        |       |   |   |
| Direct marketing                               |       | $                                     | 15,024     |                        | $          | 15,300 |   | (2 | )% |
| Sales and marketing                            |       | 4,056                                 |       | 5,927                       |       | (32 | ) |
| Technology                                     |       | 2,344                                 |       | 3,738                       |       | (37 | ) |
| General and administrative                     |       | 3,259                                 |       | 3,080                       |       | 6 |   |

 

***Direct Marketing.*** Direct marketingexpenses consist of advertising, promotions and fees incurred to drive consumertraffic to the InsWeb online marketplace. Ourmarketing strategy is designed to increase consumer traffic to our website andto drive awareness of our insurance products and services. We employ variousmeans of advertising, which consist primarily of online advertising, sponsoredsearch, portal advertising, e-mail campaigns and strategic partnerships withhigh-profile online companies that can drive significant traffic to the InsWebsite as well as partnerships with other online lead generators that use ournetwork.  Fees related to our onlinemarketing are expensed in the period in which the consumer clicks through froma partner’s website to InsWeb’s website, or in some cases, when the consumer’sactivity on the InsWeb website generates a lead to an insurance provider. Direct marketingexpenses for the three months ending September 30, 2007 increased to $5.9million from $5.2 million in the comparable period in 2006. However, directmarketing expenses for the nine months ended September 30, 2007 decreased to $15 million, from$15.3 million for the comparable period in 2006. This overalldecrease in spending, and the resulting 8% increase in consumer trafficcompared to 2006 levels, is attributable to our focus on direct marketingopportunities that provide incremental revenue in excess of the cost of directmarketing. Direct marketing expense as a percent of total revenues was 64% and59% for the three andnine months ended September 30, 2007, respectively, compared to 69% and 68% forthe comparable periods in 2006. Direct Marketing expenses perconsumer were $3.00 and $3.03 for the three and nine months ended September 30,2007, respectively, down from $3.43 and $3.34 for the comparable periods in2006.  We expect direct marketingexpenses per consumer to remain at or near current levels for the remainder of 2007. While theamount of consumer traffic driven to our marketplace is expected to decreaseslightly during the remainder of 2007, due to expected seasonality and thecompetitive environment for online consumers, we expect that consumer trafficfor 2007 in total should increase compared to 2006 levels.

 

 

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***Sales and Marketing.*** Sales and marketingexpenses consist primarily of payroll and related expenses, including employeebenefits, facility costs, telecommunications and systems costs, for our salesand marketing personnel. Sales and marketing expenses decreased to $1.3 millionand $4.1 million for the three and nine months ended September 30, 2007, respectively, from $1.9 millionand $5.9 million for the comparable periods in 2006. This decrease wasprimarily due to the winding-down of our term life agency beginning in April2007 and the unrelated reduction in headcount completed in September 2006. Sales and marketing expenses for the remainder of 2007 are expected toremain at or near current levels.

 

***Technology.*** Technology expensesconsist primarily of payroll and related expenses, including employee benefits,facility and systems costs, for product and site development personnel involvedwith the planning, design and implementation of our technology initiatives.Technology expenses decreased to $0.7 million and $2.3 million for the threeand nine months endedSeptember 30, 2007, respectively, from $1.3 million and $3.7 million for the comparableperiods in 2006. This decrease was primarily due to the reduction inheadcount completed in September 2006. Technology expenses for the remainder of 2007 areexpected to remain at or near current levels.

 

***General and Administrative.*** General andadministrative expenses consist primarily of payroll and related expenses,including employee benefits, facility costs, telecommunications and systemscosts, for our general management, administrative and accounting personnel, aswell as other general corporate expenses. General and administrative expenseswere $1.0 million and $3.3 million for the three and nine months ended September 30, 2007, respectively, ascompared to $0.8 million and $3.1 million for the comparable periods in2006. The increase in general and administrative expenses for the threemonths ended September 30, 2007 was due to relocation related benefitsassociated with the reorganizationof our senior management team in the quarter ending June 30, 2007. General and administrative expenses are expectedto remain at or near current levelsfor the remainder of 2007.

 

***Interest Income***

 

Interest income was $108,000 and $287,000 for thethree and nine months ended September 30, 2007, respectively, and $92,000 and$286,000, respectively, for the comparable periods in 2006. Interest incomerepresents interest earned on InsWeb’s investment securities.

***OtherIncome***

 

Other income was $0 and $6,000 for the three and ninemonths ended September 30, 2007, respectively. Other income for the three andnine months ended September 30, 2006 was $5,000 and $2.0 million. Other incomefor the nine months ended September 30, 2006 primarily represents a gain of$2.0 million that was recognized in connection with the sale of InsWeb InsuranceServices’ property and casualty agency book of business in the second quarterof 2006.

 

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**CriticalAccounting Policies**

 

Our discussion and analysis of our financial condition and results ofoperations are based on our consolidated financial statements which have beenprepared in accordance with accounting principles generally accepted in theUnited States. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period. We base our estimates and judgments on historicalexperience and on various other factors that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. We believe the followingcritical accounting policies affect our more significant judgments andestimates used in the preparation of our consolidated financial statements.

 

***Accrual for Lease Obligations.*** We arecontractually obligated to make future lease payments on certain formerlyoccupied facilities through September 2008. As of September 30, 2007,total future obligations for these facilities amounted to $2.5 million; theseobligations are offset by total contractual future sublease income ofapproximately $2.2 million. Substantially all future sublease income isdue from a sublessee that is a technology company with a history of operating lossesand, therefore, there are inherent risks and uncertainties associated with itsfuture operations and its ability to discharge its obligations through the termof the sublease. In the event that the sublessee defaults on its contractualobligations under the amended sublease, We would be responsible for making therequired lease payments to the landlord through the remaining term of thelease. In connection with this lease and other lease obligations for formerlyoccupied facilities, We must make assumptions regarding the potential futuresublease income relative to these facilities. These estimates and assumptionsare affected by area-specific conditions such as new commercial development,market occupancy rates and future market prices. Based on these assumptions, wemaintain an accrual for formerly occupied facilities and continue to monitorthe risk of loss to determine whether a change in estimate is necessary in thenear term. The remaining accrual for lease obligations for formerly occupiedfacilities was $1.3 million at September 30, 2007, compared to $1.6 million atDecember 31, 2006. If these estimates or theirrelated assumptions change in the future, We may be required to record a chargeto increase its existing accrual. InsWeb continues to monitor its risk of lossto determine whether a change in the estimated lease loss accrual may benecessary in the near term.

 

***Contingencies.*** As discussed inNote 7 of Notes to Condensed Consolidated Financial Statements in Part I ofthis report, a class action lawsuit has been filed that alleges InsWeb violatedcertain federal securities laws at the time of its initial public offering.Although some claims against InsWeb in this class action have been dismissedand a settlement of these proceedings was proposed and accepted, thecertification of the plaintiff’s class was vacated by the Second Circuit Courtof Appeals. Accordingly, the plaintiffs have filed an amended complaint. Wecannot accurately predict the ultimate outcome of this matter at this time and therefore,cannot estimate the range of probable loss, if any, due to the inherentuncertainties of litigation. We believe it has meritorious defenses; however wecannot assure that we will prevail in this action. An unfavorable outcome couldhave a material adverse effect on our financial condition, results ofoperations and cash flows.

 

Also as described in Note 7, InsWeb is the nominal defendant in alawsuit filed against its IPO underwriters. The suit seeks disgorgement of allprofits received by the underwriters, with interest and attorneys fees, forshort-swing trading transactions in violation of §16(b). Similar lawsuits against underwriters ofother public companies have been filed by the same plaintiff and lawfirm.  The litigation is in the preliminary stage, and InsWeb cannotpredict its outcome; however if unfavorable, itcould have a material adverse effect on InsWeb’s financial condition, resultsof operations and cash flows.

 

***Share-Based Compensation.*******We account for share-based compensation in accordancewith Statement of Financial Accounting Standards (SFAS) No. 123(R), *Share-Based Payment*. Under the provisions of SFAS No.123(R), stock-based compensation cost is generally estimated at the measurementdate, generally the grant date, based on the award’s fair value as calculatedby the Black-Scholes-Merton (BSM) option-pricing model and is recognized asexpense over the requisite service period. The BSM model requires varioushighly judgmental assumptions including expected option life, volatility, andforfeiture rates. If any of the assumptions used in the BSM model changesignificantly, share-based compensation expense may differ materially in thefuture from that recorded in the current period. See additional discussion inNote 3 of the Notes to Consolidated Financial Statements.

 

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***Income Taxes.***We account for income taxes in accordancewith Statement of Financial Accounting Standards No. 109 (SFAS 109), *Accounting for Income Taxes* and FASB InterpretationNo. 48, *Accounting for Uncertainty inIncome Taxes — An Interpretation of FASB Statement No. 109.* Thedeferred tax assets and/or liabilities are determined by multiplying thedifferences between the financial reporting and tax reporting bases for assetsand liabilities by the enacted tax rates expected to be in effect when suchdifferences are recovered or settled. We adopted the provisions of FIN 48 as ofJanuary 1, 2007. The adoption of FIN 48 did not have a material impact on ourfinancial statements.

 

The carrying value of ourdeferred tax assets, which was approximately $76 million at December 31, 2006,is dependent upon our ability to generate sufficient future taxable income. Wehave established a full valuation allowance against our net deferred tax assetsfor continuing operations to reflect the uncertainty of realizing the deferredtax benefits, given historical losses. A valuation allowance is required whenit is more likely than not that all or a portion of a deferred tax asset will notbe realized. A review of all available positive and negative evidence needs tobe considered, including our past and future performance, the marketenvironment in which we operate, the utilization of tax attributes in the past,and the length of carryforward periods and evaluation of potential tax planningstrategies. We expect to continue to maintain a full valuation allowance untilan appropriate level of profitability is sustained or we are able to concludethat it is more likely than not that a portion of our deferred tax assets wouldbe realizable. Inaddition, our ability to utilize our net operating losscarry forwards to offset future taxable income may be subject to restrictionsattributable to equity transactions that result in changes in ownership asdefined in the Tax Reform Act of 1986. These restrictions may significantlylimit, on an annual basis, our future use of our net operating loss carryforwards. The amount, if any, of such limitations has not yet been determined.

 

 

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**Liquidity and Capital Resources**

 

Summarized cash flow information is as follows (inthousands): 

 

| ** **                                      | ** ** | **Nine months ended   September 30,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                      | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| Cash provided by (used in) operating activities |       | $                                     | 367        |   | $ | (2,790 | ) |
| Cash (used in) provided by investing activities |       | (15                                   | )          | 1,159 |   |
| Cash provided by financing activities           |       | 1,389                                 |       | 32 |   |
|                                                 |            |                                       |            |  |  |  |  |

 

At September 30, 2007, InsWeb’s principal sourceof liquidity was $8.5 million in cash and cash equivalents. Sinceinception, we have financed our operations primarily through the sale of commonstock.

 

For the nine months ended September 30, 2007, net cashprovided by operating activities primarily consisted of our net income,increased by non-cash share-based compensation of $0.8 million and depreciationand amortization of property and equipment of $0.1 million. An increase inaccounts receivable of $2.3 million decreased cash provided by operations,while an increase in accounts payable and accrued expenses of $0.7 millionincreased cash provided by operations. The increase in accountsreceivable was a result of the revenue growth during the year. For the comparable nine month period ended September 30, 2006, net cashused in operating activities was $2.8 million, primarily consisting of a netloss of $3.0 million and an increase in accounts receivable of $0.6 million,partially offset by an increase of accounts payable of $0.9 million.

 

For the nine months ended September 30, 2007, net cash usedin investing activities was $15,000 primarily representing purchases of propertyand equipment. For the nine months ended September 30,2006, net cash provided by investing activities was $1.2 million, whichprimarily consisted of redemptions of short-term investments offset by thepurchases of short-term investments.

 

For the nine months ended ended September 30, 2007 and2006, net cash provided by financing activities was $1.4 million and$32,000 and was primarily attributable to the exercise of employee stockoptions.

 

We lease office facilities under non-cancelableoperating leases, which expire at various dates through April 2011,including a 10-year lease agreement through 2011 for office space in theSacramento area which currently houses our corporate headquarters. We haveoptions to extend the lease at the end of the lease term, and have the right offirst refusal on other office space in the complex. In addition, as describedunder*Accrual for Lease Obligations,* we haveentered into various sublease arrangements associated with previously exitedfacilities that have terms extending through September 2008.

 

Aggregatecontractual cash obligations, net of contractual sublease income, as ofSeptember 30, 2007 is summarized as follows (in thousands): 
| **Periods ending December 31,**       | ** ** | **Gross lease  commitments** | ** ** | **Sublease  income** | ** ** | **Net lease  commitment** | ** ** |
|---------------------------------------|------------|------------------------------|------------|----------------------|------------|---------------------------|------------|
| Three months ending December 31, 2007 |       | $                            | 884        |                 | $          | (539                      | )          | $ | 345 |   |
| Year ending December 31, 2008         |       | 2,936                        |       | (1,615               | )          | 1,321                     |       |
| Year ending December 31, 2009         |       | 1,078                        |       | —               |       | 1,078                     |       |
| Year ending December 31, 2010         |       | 1,078                        |       | —               |       | 1,078                     |       |
| Year ending December 31, 2011         |       | 359                          |       | —               |       | 359                       |       |
|                                  |       |                         |       |                 |       |                      |       |
|                                  |       | $                            | 6,335      |                 | $          | (2,154                    | )          | $ | 4,181 |   |

 

We currently anticipate that our cash and cashequivalents will be sufficient to meet our anticipated cash needs for workingcapital and capital expenditures for at least the next 12 months. Althoughwe do not anticipate the need for additional financing, we nevertheless mayrequire additional funds to meet operating needs, or to expand our businessinternally or through acquisition. We cannot be certain that additional financingwill be available when required, on favorable terms or at all. If we are notsuccessful in raising additional capital as required, our business could bematerially harmed. If additional funds were raised through the issuance ofequity securities, the percentage ownership of our then-current stockholderswould be reduced.

 

 

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**ITEM 3.     QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.**

 

Therehave been no material changes to our disclosures related to certain marketrisks as reported under Part II, Item 7A, “Quantitative and QualitativeDisclosures About Market Risk,” in our Annual Report on Form 10-K for the yearended December 31, 2006, as filed with the U.S. Securities and ExchangeCommission.

 

**ITEM 4T.  CONTROLS ANDPROCEDURES**

 

(a)                                              Under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, we evaluated the effectivenessof our disclosure controls and procedures, as such term is defined under Rule13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.Based upon that evaluation, our Chief Executive Officer and Chief FinancialOfficer concluded that our disclosure controls and procedures were effective asof the end of the period covered by this quarterly report.

 

(b)                                             There has beenno change in our internal control over financial reporting during the threemonths endedSeptember 30, 2007 that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

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

** **

**ITEM 1.     LEGALPROCEEDINGS**

 

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

 

**ITEM 1A.****     ****RISKFACTORS.**

 

Ourfuture business, operating results and financial condition are subject tovarious risks and uncertainties, including those disclosed in Part I, Item 1A, “RiskFactors,” of our Annual Report on Form 10-K for the year endedDecember 31, 2006, as filed with the U.S. Securities and ExchangeCommission. There have been no material changes to the risk factors as sodisclosed.

 

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

** **

Our annual meeting ofstockholders was held on July 18, 2007. At the meeting, the following matters were submitted to a vote of ourstockholders:

 

***Electionof Directors.***  The following persons were elected asClass II directors, to hold office for three-year terms:

 

| **Name**         | ** ** | **Shares Voted Affirmatively** | ** ** | **Votes Withheld** |
|------------------|------------|--------------------------------|------------|--------------------|
| James M. Corroon |       | 3,988,448                      |       | 4,591              |
| Thomas W. Orr    |       | 3,935,333                      |       | 57,706             |

 

***Ratificationof Appointment of Independent Registered Public Accounting Firm.*** The appointment of Ernst & Young LLP to serve as ourindependent registered public accounting firm for the year endingDecember 31, 2007 was ratified by a vote of 3,988,561 shares for;1,226  shares against; 3,251 sharesabstaining; and no broker non-votes.

 

**ITEM 6.     EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description of Document**                                                                                     |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------|
| 10.23†         | ** ** | InsWeb Services Agreement by and between Registrant  and NetQuote, Inc., dated as of July 10, 2007.        |
|                |       |                                                                                                            |
| 31.1                |       | Certification of Chief Executive  Officer, pursuant to Exchange Act Rule 13a-14(a).                             |
|                |       |                                                                                                            |
| 31.2                |       | Certification of Chief Financial  Officer, pursuant to Exchange Act Rule 13a-14(a).                             |
|                |       |                                                                                                            |
| 32                  |       | Certification of Chief Executive  Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350. |

 

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†  Confidentialtreatment has been granted as to a portion of this Exhibit.

 

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### **SIGNATURE**

 

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

 

 
| Dated: November 14, 2007 | **INSWEB  CORPORATION**  |
|--------------------------|--------------------------|
| ** **               | **(Registrant)**         |
|                     |                     |
| ** **               | **/s/ STEVEN J. YASUDA** |
|                     | Steven J. Yasuda         |
|                     | Chief Accounting Officer |

 

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