**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-Q**

 

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

 

**For the quarterly period ended June 30, 2002**

 

**or**

** **

| **o**  |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES****EXCHANGE ACT OF 1934**                                                                                                                                      |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                       |
|   |   | **For the transition period from                    to                  ** |

 

**Commission file number 0–26083**

** **

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** **

| **INSWEB CORPORATION**                                          |
|-----------------------------------------------------------------|
| (Exact name of Registrant as specified in 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 allreports required to be filed by Sections 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the Registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes ý  No o

 

The number of outstanding shares of the Registrant’s Common Stock, parvalue $0.001 per share, onJuly31, 2002 were 7,049,329 shares.

 

 

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**FORM 10-Q**

**INSWEB CORPORATION**

**INDEX**

** **
| **PART I**  | **FINANCIAL INFORMATION**                                                                                   |
|-------------|-------------------------------------------------------------------------------------------------------------|
|        |                                                                                                        |
| ITEM 1:     | Financial Statements                                                                                        |
|        |                                                                                                        |
|        | Condensed  Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001                            |
|        | Condensed  Consolidated Statements of Operations for the three and six months ended June  30, 2002 and 2001 |
|        | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30, 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  4:    | Submission  of Matters to a Vote of Security Holders                                                        |
|        |                                                                                                        |
| ITEM 6:     | Exhibits and  Reports on Form 8-K                                                                           |
|        |                                                                                                        |
|        |                                                                                                        |
|        | Signature                                                                                                   |

 

2

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**PARTI:  FINANCIAL INFORMATION**

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

 

**INSWEB CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

*(in thousands)*

*(unaudited)*

 
|                                                    |   | **June 30,  2002** |   | **December 31,  2001** |   |
|---------------------------------------------------------|--------|--------------------|--------|------------------------|--------|
| **Assets**                                              |   |               |   |                   |   |
| Current assets:                                         |   |               |   |                   |   |
| Cash and cash  equivalents                              |   | $                  | 14,590 |                   | $      | 14,627 |   |
| Short-term investments                                  |   | 18,525             |   | 20,936                 |   |
| Accounts receivable, net of allowance of  $294 and $167 |   | 2,567              |   | 2,672                  |   |
| Prepaid expenses and other current assets               |   | 697                |   | 1,169                  |   |
| Total current assets                                    |   | 36,379             |   | 39,404                 |   |
| Property and equipment, net                             |   | 3,141              |   | 3,798                  |   |
| Prepaid marketing costs                                 |   | 5,268              |   | 6,020                  |   |
| Deposits and other assets                               |   | 3,166              |   | 5,120                  |   |
| Total assets                                            |   | $                  | 47,954 |                   | $      | 54,342 |   |
|                                                    |   |               |   |                   |   |
| **Liabilities and  stockholders’ equity**          |   |               |   |                   |   |
| Current liabilities:                                    |   |               |   |                   |   |
| Accounts payable                                        |   | $                  | 1,082  |                   | $      | 902 |   |
| Accrued expenses                                        |   | 4,326              |   | 3,851                  |   |
| Deferred revenue                                        |   | 734                |   | 1,156                  |   |
| Marketing commitment with stockholder,  current portion |   | 4,985              |   | 2,026                  |   |
| Payable to stockholder, current portion                 |   | 1,252              |   | 1,145                  |   |
| Total current liabilities                               |   | 12,379             |   | 9,080                  |   |
| Long-term marketing commitment with  stockholder        |   | —             |   | 13,490                 |   |
| Total liabilities                                       |   | 12,379             |   | 22,570                 |   |
|                                                    |   |               |   |                   |   |
| Commitments  and contingencies                          |   |               |   |                   |   |
|                                                    |   |               |   |                   |   |
| Stockholders’ equity:                              |   |               |   |                   |   |
| Common stock                                            |   | 7                  |   | 7                      |   |
| Paid-in capital, less treasury stock                    |   | 202,086            |   | 202,044                |   |
| Accumulated other comprehensive loss                    |   | (96                | )      | (95                    | )      |
| Accumulated deficit                                     |   | (166,422           | )      | (170,184               | )      |
| Total stockholders’ equity                         |   | 35,575             |   | 31,772                 |   |
| Total liabilities and stockholders’ equity         |   | $                  | 47,954 |                   | $      | 54,342 |   |

 

See accompanying notes.

 

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**INSWEB CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

*(in thousands, except per share amounts)*

*(unaudited)*

* *
|                                                                          |   | **Three Months  Ended June 30,** |       | **Six Months  Ended June 30,** |       |
|-------------------------------------------------------------------------------|--------|----------------------------------|------------|--------------------------------|------------|
|                                                                          |   | **2002**                         |       | **2001**                       |       | **2002** |   | **2001** | ** ** |
| Revenues:                                                                     |   |                             | ** ** |                           | ** ** |   | ** ** |   | ** ** |
| Transaction fees                                                              |   | $                                | 5,885      |                           | $          | 5,189 |   | $ | 12,278 |   | $ | 11,769 |   |
| Development and maintenance fees                                              |   | 434                              |       | 372                            |       | 875 |   | 948 |   |
| Total revenues                                                                |   | 6,319                            |       | 5,561                          |       | 13,153 |   | 12,717 |   |
|                                                                          |   |                             |       |                           |       |   |   |   |   |
| Operating expenses:                                                           |   |                             |       |                           |       |   |   |   |   |
| Technology                                                                    |   | 2,598                            |       | 3,900                          |       | 5,618 |   | 7,877 |   |
| Sales and marketing                                                           |   | 4,583                            |       | 6,817                          |       | 9,425 |   | 13,468 |   |
| General and administrative                                                    |   | 1,983                            |       | 1,892                          |       | 3,764 |   | 4,134 |   |
| Amortization of intangible assets and  other                                  |   | —                           |       | 710                            |       | — |   | 1,277 |   |
| Total operating expenses                                                      |   | 9,164                            |       | 13,319                         |       | 18,807 |   | 26,756 |   |
| Loss from operations                                                          |   | (2,845                           | )          | (7,758                         | )          | (5,654 | ) | (14,039 | ) |
|                                                                          |   |                             |       |                           |       |   |   |   |   |
| Interest expense                                                              |   | (79                              | )          | (16                            | )          | (347 | ) | (31 | ) |
| Interest income and other                                                     |   | 226                              |       | 581                            |       | 418 |   | 1,389 |   |
| Loss before extraordinary gain                                                |   | (2,698                           | )          | (7,193                         | )          | (5,583 | ) | (12,681 | ) |
| Extraordinary  gain                                                           |   | —                           |       | —                         |       | 9,345 |   | — |   |
| Net (loss)  income                                                            |   | $                                | (2,698     | )                              | $          | (7,193 | ) | $ | 3,762 |   | $ | (12,681 | ) |
|                                                                          |   |                             |       |                           |       |   |   |   |   |
| Net (loss)  income per share-basic and diluted:                               |   |                             |       |                           |       |   |   |   |   |
| Loss before extraordinary gain                                                |   | $                                | (0.38      | )                              | $          | (1.02 | ) | $ | (0.80 | ) | $ | (1.84 | ) |
| Extraordinary gain                                                            |   | —                           |       | —                         |       | 1.33 |   | — |   |
| Net (loss) income per share-basic and  diluted                                |   | $                                | (0.38      | )                              | $          | (1.02 | ) | $ | 0.53 |   | $ | (1.84 | ) |
|                                                                          |   |                             |       |                           |       |   |   |   |   |
| Weighted average shares used in computing  pershare amounts-basic and diluted |   | 7,039                            |       | 7,052                          |       | 7,037 |   | 6,909 |   |

 

See accompanying notes.

 

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**INSWEBCORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

*(in thousands)*

*(unaudited)*

* *
|                                                                                  |   | **Six Months Ended  June 30,** |       |
|---------------------------------------------------------------------------------------|--------|--------------------------------|------------|
|                                                                                  |   | **2002**                       |       | **2001** | ** ** |
| Cash flows from operating activities:                                                 |   |                           | ** ** |   | ** ** |
| Net income (loss)                                                                     |   | $                              | 3,762      |   | $ | (12,681 | ) |
| Adjustments to reconcile net income (loss) to net cash used in  operating activities: |   |                           |       |   |   |
| Extraordinary gain                                                                    |   | (9,345                         | )          | — |   |
| Amortization of intangible assets and prepaid marketing costs                         |   | 752                            |       | 1,146 |   |
| Depreciation and amortization                                                         |   | 1,215                          |       | 2,510 |   |
| Issuance of common stock warrants                                                     |   | —                         |       | 276 |   |
| Loss on disposal/sale of equipment                                                    |   | —                         |       | 628 |   |
| Other                                                                                 |   | (42                            | )          | 103 |   |
| Net changes in operating assets and liabilities:                                      |   |                           |       |   |   |
| Accounts receivable                                                                   |   | 105                            |       | 485 |   |
| Prepaid expenses and other current assets                                             |   | 472                            |       | 1,752 |   |
| Deposits and other assets                                                             |   | 1,826                          |       | (345 | ) |
| Accounts payable                                                                      |   | 180                            |       | (76 | ) |
| Accrued expenses                                                                      |   | 475                            |       | 809 |   |
| Deferred revenue                                                                      |   | (422                           | )          | (2,041 | ) |
| Other liabilities                                                                     |   | —                         |       | 286 |   |
| Net cash used in operating activities                                                 |   | (1,022                         | )          | (7,148 | ) |
| Cash flows from investing activities:                                                 |   |                           |       |   |   |
| Redemptions of short term investments                                                 |   | 23,351                         |       | 9,786 |   |
| Purchases of short term investments                                                   |   | (20,939                        | )          | (15,319 | ) |
| Purchases of property and equipment and capitalized website  development costs        |   | (283                           | )          | (1,475 | ) |
| Acquisition costs relating to assets purchased from Intuit                            |   | —                         |       | (263 | ) |
| Net cash provided by (used in) investing activities                                   |   | 2,129                          |       | (7,271 | ) |
| Cash flows from financing activities:                                                 |   |                           |       |   |   |
| Payments on marketing commitments                                                     |   | (1,186                         | )          | — |   |
| Proceeds from issuance of common stock through stock plans                            |   | 42                             |       | 42 |   |
| Repurchase of common stock                                                            |   | —                         |       | (204 | ) |
| Net cash used in financing activities                                                 |   | (1,144                         | )          | (162 | ) |
| Net decrease in cash and cash equivalents                                             |   | (37                            | )          | (14,581 | ) |
| Cash and cash equivalents, beginning of period                                        |   | 14,627                         |       | 24,795 |   |
| Cash and cash equivalents, end of period                                              |   | $                              | 14,590     |   | $ | 10,214 |   |
|                                                                                  |   |                           |       |   |   |
| Supplemental disclosure of cash flow information:                                     |   |                           |       |   |   |
| Cash paid during the period for interest                                              |   | $                              | 347        |   | $ | 31 |   |
|                                                                                  |   |                           |       |   |   |
| 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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**INSWEB CORPORATION AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

***(Amounts in thousands)***

 

**1. Business of InsWeb**

 

InsWeb Corporation operates anonline insurance marketplace that enables consumers to comparison shop onlineand obtain insurance company-sponsored quotes for a variety of insuranceproducts, including automobile, term life and homeowners. InsWeb’s marketplaceelectronically matches consumers and insurance companies. InsWeb has combinedextensive knowledge of the insurance industry, technological expertise andclose relationships with a significant number of insurance companies to developan integrated online marketplace. InsWeb’s marketplace enables consumers toresearch insurance-related topics, search for, analyze and compare insuranceproducts, apply for and receive insurance company-sponsored quotes for actualcoverage and to purchase automobile insurance coverage through InsWeb’sinsurance agency. Management believes that InsWeb provides insurance companieswith pre-qualified consumers at attractive acquisition costs, as well as thescalable, cost-efficient distribution capabilities of InsWeb’s Internet-basedmodel.

 

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

 

***2.  *****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 andtransactions have been eliminated in the consolidated financial statements.

 

The accompanying unaudited interim financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financial information andwith the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not contain all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.  In the opinion of management, theaccompanying unaudited interim condensed consolidated financial statementsreflect all adjustments, which include only normal recurring adjustments,necessary to present fairly InsWeb’s financial position as of June 30, 2002 andthe results of operations and cash flows for the three and six months endedJune 30, 2002 and June 30, 2001.  Thefinancial data and other information disclosed in these notes to the condensedconsolidated financial statements related to these periods are unaudited.  The results for the three and six monthsended June 30, 2002 are not necessarily indicative of the results to beexpected for the year ending December 31, 2002.

 

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

 

**3.  Net Loss Per Share– Basic and Diluted**

 

Basic earnings per share iscomputed using the weighted average number of shares of common stockoutstanding.  Diluted earnings per sharereflects the potential dilution that would occur if stock options and warrantshad been exercised.  Except for the sixmonth period ended June 30, 2002, common equivalent shares from stock optionsand warrants have been excluded from the computation of net loss pershare-diluted as their effect is antidilutive. For the six-month period ended June 30, 2002, shares used in thecomputation of diluted earnings per share are not significantly different thanthe number of shares used in the computation of basic earnings per share.

 

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**4.  Revenues**

 

Revenues by source for the three and six months endedJune 30, 2002 and 2001 were as follows:

 
|                             |   | **Three months ended June 30,** |   | **Six months ended June 30,** |   |
|----------------------------------|--------|---------------------------------|--------|-------------------------------|--------|
|                             |   | **2002**                        |   | **2001**                      |   | **2002** |   | **2001** |   |
| Transaction revenues:            |   |                            |   |                          |   |   |   |   |   |
| Auto insurance                   |   | $                               | 4,750  |                          | $      | 3,856 |   | $ | 9,970 |   | $ | 7,690 |   |
| Term life insurance              |   | 1,054                           |   | 1,144                         |   | 2,143 |   | 2,064 |   |
| Other insurance                  |   | 81                              |   | 189                           |   | 165 |   | 2,015 |   |
| Total transaction revenue        |   | 5,885                           |   | 5,189                         |   | 12,278 |   | 11,769 |   |
| Development and maintenance fees |   | 434                             |   | 372                           |   | 875 |   | 948 |   |
| Total revenues                   |   | $                               | 6,319  |                          | $      | 5,561 |   | $ | 13,153 |   | $ | 12,717 |   |

 

**5.  Comprehensive(Loss) Income**

 

Total comprehensive (loss) income for the three andsix months ended June 30, 2002 and 2001 were as follows:

 
|                                             |   | **Three months ended June 30,** |   | **Six months ended June 30,** |   |
|--------------------------------------------------|--------|---------------------------------|--------|-------------------------------|--------|
|                                             |   | **2002**                        |   | **2001**                      |   | **2002** |   | **2001** |   |
| Net (loss) income                                |   | $                               | (2,698 | )                             | $      | (7,193 | ) | $ | 3,762 |   | $ | (12,681 | ) |
| Other comprehensive loss:                        |   |                            |   |                          |   |   |   |   |   |
| Foreign currency translation adjustments         |   | —                          |   | —                        |   | — |   | (165 | ) |
| Change in unrealized gain (loss) on  investments |   | 8                               |   | 2                             |   | (1 | ) | 5 |   |
| Total comprehensive (loss) income                |   | $                               | (2,690 | )                             | $      | (7,191 | ) | $ | 3,761 |   | $ | (12,841 | ) |

 

**6. Related Party Transactions**

 

During the three and six months ended June 30, 2002,InsWeb recognized $383 and $740, respectively, in marketing expenses under amarketing agreement with an Internet company, compared to $1,025 and $2,025, respectivelyfor the comparable periods in 2001.  Anaffiliate of the Internet company became a stockholder of InsWeb in December1998.

 

For the three months ended June30, 2002 and 2001, InsWeb paid Intuit Inc. (“Intuit”) $750 and $625 under alicense and distribution agreement, which was amended on March 28, 2002(see Note 8).  For the six monthsended June 30, 2002 and 2001, InsWeb paid Intuit $1,500 and $1,250,respectively, under this license and distribution agreement.

 

**7.  Recent AccountingPronouncement**

 

In April 2002, the FinancialAccounting Standards Board (the “FASB”) issued Statement of FinancialAccounting Standards No. 145 (“SFAS 145”), the “Rescission of FASB StatementsNo. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections.”  SFAS 145 will require gains and losses onextinguishments of debt to be classified as income or loss from continuingoperations rather than as extraordinary items.   SFAS 145 will be effective for InsWeb’s fiscal year beginningJanuary 1, 2003.  Upon the effectivedate of SFAS 145, the extraordinary gain of $9,345 recorded in connection withthe amendment of the license and distribution agreement with Intuit (see Note8) will be reclassified to other income. Except for this reclassification, the adoption of SFAS 145 will notaffect InsWeb’s financial condition, results of operations or cash flows.

 

7

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**8.  Commitments and Contingencies**

 

***MarketingAgreements***

 

In January 2001, InsWebacquired from Intuit certain assets and related liabilities associated with anonline insurance shopping and purchasing service operated by Intuit InsuranceServices, Inc., a wholly-owned subsidiary of Intuit. InsWeb did notacquire any of Intuit’s revenue producing relationships with insurancecarriers; however, InsWeb acquired the right to be assigned all Internettraffic from the licensing agreements that Intuit had previously negotiatedwith its strategic partners.

 

In connection with theacquisition, InsWeb and Intuit entered into a license and distributionagreement under which Intuit and InsWeb granted one another licenses to createlinks between their respective websites in order to create and operate aco-branded insurance center. Under this agreement InsWeb is the exclusiveaggregator of online consumer insurance services for Quicken.com, an Intuitwebsite. The original agreement required InsWeb to pay Intuit fixed feestotaling $20,500 plus additional amounts associated with consumers linking fromthe Quicken.com website to the InsWeb co-branded insurance center. Intuit alsoagreed to a not-to-compete covenant for a period of five years.

 

On March 28, 2002, the partiesamended the agreement.  Under theamended agreement, InsWeb will make the originally agreed upon fixed payments(long–term marketing commitments) only through July 31, 2003 ($4,250from April 2002 through May 2003). Fixed payments previously payable to Intuitafter July 31, 2003 have been forgiven ($2,000 in 2003, $5,000 in 2004 and$6,000 in 2005). Effective August 1, 2003 and through the remainder of theagreement (January 2006), InsWeb will pay Intuit a portion of thetransaction fees received by InsWeb from the Intuit Internet traffic, payableon a quarterly basis.  The net result ofthis amended contract was a $9,345 extraordinary gain, accounted for inInsWeb’s results of operations for the quarter ended March 31, 2002.

 

At June 30, 2002, future minimumpayments under this agreement were: $1,500 in 2002; $2,000 in 2003; and none thereafter.

 

***eHealthInsurance Litigation***

 

In February 2001, InsWebtemporarily suspended its online health insurance quoting services due to thedecision by eHealthInsurance, Inc. (“eHealthInsurance”), formerly InsWeb’sexclusive provider of online health insurance quotes, to unilaterally terminatethe relationship. In April 2000, the two companies signed a two-yearonline distribution agreement by which eHealthInsurance became the exclusiveprovider of individual health, small–group health and Medicare supplementinsurance quotes to InsWeb’s users through a co-branded website. InFebruary 2001, eHealthInsurance filed suit in the U.S. District Court forthe Northern District of California alleging InsWeb’s failure to perform itsobligations under the agreement. The complaint seeks unspecified compensatoryand punitive damages.  InMarch 2001, InsWeb filed a counterclaim alleging that eHealthInsurancewrongfully terminated the linking agreement and pursued a course of conductaimed at damaging InsWeb’s business. Due to the inherent uncertainties of litigation, InsWeb cannotaccurately predict the ultimate outcome of this matter at this time andtherefore, cannot estimate the range of probable loss, if any. InsWeb believesit has meritorious defenses with respect to this claim, however InsWeb cannotassure that it will prevail in this action. An unfavorable outcome could have amaterial adverse effect on InsWeb’s financial condition, results of operationsor cash flows.

 

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***SecuritiesClass Action Lawsuit***

 

A class action lawsuit was filedon December 5, 2001 in the U.S. District Court for the Southern Districtof New York on behalf of purchasers of InsWeb common stock alleging violationsof federal securities laws. The case is brought purportedly on behalf of allpersons who purchased InsWeb common stock from July 22, 1999 throughDecember 6, 2000. The complaint names as defendants InsWeb, certaincurrent and former officers and directors, and three underwriters for InsWeb’sinitial public offering in July 1999. The complaint alleges violations of theSecurities Act of 1933 and the Securities Exchange Act of 1934, on the groundsthat the prospectus incorporated in the registration statement 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 investorssubstantial blocks of the stock sold in the initial public offering, and(ii) the underwriters had entered into agreements with customers wherebythe underwriters agreed to allocate shares of the stock sold in the initialpublic offering to those customers in exchange for which the customers agreedto purchase additional shares of InsWeb stock in the aftermarket at pre–determinedprices that were above the initial public offering price. No specific damagesare claimed.  InsWeb believes that theallegations against InsWeb and its current and former officers and directorsare without merit and intends to contest them vigorously. The litigation is inthe preliminary stage, and InsWeb cannot predict its outcome. The litigationprocess is inherently uncertain. An unfavorable outcome could have a materialadverse effect on InsWeb’s financial condition, results of operations or cashflows.

 

**9.  Subsequent Events**

 

In July 2002, InsWeb andits sub-lessee agreed to amend the existing sublease covering portions of theproperty InsWeb formerly occupied as its headquarters.  Under the terms of the amendment, thesublessee has agreed to rent the entire premises for the entire remaining termof the InsWeb lease (through September 2008). All rent amounts and operating expenses otherwise payable by InsWeb tothe landlord will be paid directly by the sub-lessee.  As a result, InsWeb anticipates a reduction in its operatinglease commitments of $11,600 throughout the remainder of the lease.  However, in the event that the sub-lesseedefaults on the amended sublease agreement, InsWeb would continue to beresponsible to make the required lease payments during the remaining term ofthe lease agreement.

 

In July 2002, the Board of Directors authorizedmanagement to repurchase shares of InsWeb’s common stock for a total purchaseprice of up to $1,000 over the succeeding 12-month period.

 

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

 

*InsWeb has included in this filing certain “forward–lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995 concerning InsWeb’s business, operations and financial condition.  The words or phrases “expects,”“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similarexpressions 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 onbehalf 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 anduncertainties, as well as other risks and uncertainties are described ingreater detail in the section entitled “Factors That May Affect Future Performance.”All forward-looking statements are based on information available to InsWeb onthe date hereof, and InsWeb 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 insurance companiespay transaction fees to InsWeb generally based on qualified leads delivered tothem electronically. Qualified leads are produced in two ways: for insurancecompanies offering consumers instant online quotes, a qualified lead isproduced when a consumer requests insurance coverage based on a specific quote;for insurance companies providing e-mail or other offline quotes, a qualifiedlead is produced when the consumer clicks to request the quote itself. Ineither case, transaction fees are generally payable whether or not the consumeractually purchases an insurance policy from the insurance company.

 

InsWebalso generates development and maintenance fees from its participatinginsurance companies.  InsWeb charges afee to design and develop customized interfaces between an insurance company’sinformation system and the InsWeb site. InsWeb recognizes revenue from set-up fees received from aparticipating insurance carrier ratably over the estimated life of the carrierrelationship, after the development work is complete and the insurancecompany’s integration with the Company’s site has become operational (“LiveDate”). Additional development fees are charged asinsurance companies add new products, increase their geographic coverage andconvert to instant quoting capability on the InsWeb online insurancemarketplace, as well as for periodic upgrades and changes to insurancecompanies’ information resident on the InsWeb site. InsWeb charges maintenancefees for maintaining and servicing the programs of the individual insurancecompanies and for maintaining any hardware at InsWeb’s facility that isdedicated to specific insurance companies. These maintenance fees are typicallypayable monthly and are recognized as revenue ratably over the term of the maintenanceagreement. Prepaid development and maintenance fees are recorded as deferredrevenue until earned. Development and maintenance fees are expected to accountfor a declining percentage of total revenues as transaction fees increase.

 

Technology expenses consist primarily of payroll andrelated expenses, including employee benefits, facility costs,telecommunications and systems costs, for product and site developmentpersonnel involved with the planning and design of carrier implementation andintegration.  InsWeb expects itstechnology expenditures to remain at current levels for the remainder of 2002.

 

Sales and marketing expenses consist of directmarketing expenditures that include advertising, promotions and fees paid toonline companies with which InsWeb has contractual relationships to driveconsumer traffic to the InsWeb online marketplace.  InsWeb’s current consumer marketing program is focused onmaintaining key online relationships and selective cost-effective marketingcampaigns designed to maintain consumer awareness of InsWeb and its onlineinsurance marketplace.  Also included insales and marketing expense are payroll and related expenses, includingemployee benefits, facility costs, telecommunications and systems costs, forInsWeb’s sales and marketing personnel and the personnel and related costs forthe InsWeb Insurance Agency, which includes selling agents, underwriters,supervisors and customer service and support groups.  Direct marketing costs will fluctuate based on the amount of consumertraffic driven to the InsWeb marketplace, while all other sales and marketingexpenditures are expected to remain at current levels for the remainder of2002.

 

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General and administrativeexpenses consist primarily of payroll and related expenses, including employee benefits, facilitycosts, telecommunications and systems costs, for InsWeb’s generalmanagement, administrative and accounting personnel, as well as other generalcorporate expenses. General and administrative expenditures are expected toremain at current levels for the remainder of 2002.

 

Since its inception, InsWeb has incurred significantlosses, and as of June 30, 2002 InsWeb had an accumulated deficit of $166.4million.  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’smarketing and sales activities.  InsWebintends to continue to invest in product development, sales and marketing andin its administrative infrastructure. As a result, InsWeb believes that it will continue to incur operatinglosses 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.  Due to 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.

 

**Resultsof Operations**

 

The following table sets forth certain statement ofoperations items as a percentage of total revenues for the three and six monthsended June 30, 2002 and 2001:

 
|                                         |   | **Three  months ended  June 30,** |   | **Six months  ended  June 30,** |   |
|----------------------------------------------|--------|-----------------------------------|--------|---------------------------------|--------|
|                                         |   | **2002**                          |   | **2001**                        |   | **2002** |   | **2001** |   |
| Revenues:                                    |   |                              |   |                            |   |   |   |   |   |
| Transaction fees                             |   | 93                                | %      | 93                              | %      | 93 | % | 93 | % |
| Development and  maintenance fees            |   | 7                                 | %      | 7                               | %      | 7 | % | 7 | % |
| Total                                        |   | 100                               | %      | 100                             | %      | 100 | % | 100 | % |
| Operating  expenses:                         |   |                              |   |                            |   |   |   |   |   |
| Technology                                   |   | 41                                | %      | 70                              | %      | 43 | % | 62 | % |
| Sales and  marketing                         |   | 73                                | %      | 123                             | %      | 72 | % | 106 | % |
| General and  administrative                  |   | 31                                | %      | 34                              | %      | 28 | % | 32 | % |
| Amortization of  intangible assets and other |   | —                            |   | 13                              | %      | — |   | 10 | % |
| Total                                        |   | 145                               | %      | 240                             | %      | 143 | % | 210 | % |
| Loss from  operations                        |   | (45                               | )%     | (140                            | )%     | (43 | )% | (110 | )% |

 

***Revenues***

 

*TransactionFees.*  During the first six months of 2002,approximately 1.5 million shopping sessions were completed for autotransactions at InsWeb, a 36% increase from the approximate 1.1 millionshopping sessions completed for auto in the first six months of 2001.  Approximately 4.4 million consumer quoteswere presented for auto transactions during the first six months of 2002, anincrease of 57% from the approximate 2.8 million consumer quotes presented forauto transactions in the comparable period in 2001.

 

Auto transaction fees accounted for $4.7 million and$10.0 million of total revenues for the three and six months ended June 30,2002, compared to $3.9 million and $7.7 million of total revenue, for thecomparable periods in 2001. The increase for the three and six months endedJune 30, 2002 was primarily attributable to the increased number of leadsgenerated by an increased number of shopping sessions. The increase in shoppingsessions resulted from increased consumer traffic from InsWeb’s onlinemarketing activities.

 

Term life transaction fees accounted for $1.1 millionof total revenues for the three months ended June 30, 2002 and 2001,respectively. Term life transaction fees accounted for $2.1 million of totalrevenues for the six months ended June 30, 2002 and 2001, respectively.  Term life leads and shopping sessionsremained relatively level for the three and six months ended June 30, 2002.

 

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Other insurance transaction revenues accounted for$0.1 million and $0.2 million of total revenues for the three and six monthsended June 30, 2002, compared to $0.2 million and $2.0 million of totalrevenue, for the comparable periods in 2001. The decrease for the three monthsended June 30, 2002 was primarily due to decreased leads and shopping sessionsrelated to home products insurance offerings. The decrease for the six months ended June 30, 2002 was primarilyattributable to the loss of eHealthInsurance, effective February 2001. eHealthInsurance representednone of InsWeb’s other transaction revenues for the six months ended June 30,2002 versus $1.5 million  in thecomparable prior period.  This decreasewas also partially due to decreased leads and shopping sessions for homeproduct offerings.

 

*Developmentand Maintenance Fees.*  Development and maintenancefees accounted for $0.4 million and $0.9 million of total revenues, for thethree and six months ended June 30, 2002, each of which was unchanged from thecomparable period in 2001.  Development and maintenancefees remained flat as the number of carriers participating at InsWeb remainedrelatively unchanged.

 

***Operating Expenses***

 

*Technology.*  Technology expenses decreased to $2.6 million and $5.6 millionfor the three and six months ended June 30, 2002, from $3.9 million and $7.9million for the comparable periods in 2001. The decreases were primarily attributable to reduced headcount andretention bonuses that were earned in 2001.

 

*Sales and Marketing.*  Sales and marketing expenses decreased to $4.6 million and $9.4million for the three and six months ended June 30, 2002, from $6.8 million and$13.5 million for the comparable periods in 2001.  Direct marketing expenses decreased to $2.8 million and $5.7million for the three and six months ended June 30, 2002, from $4.4 million and$8.6 million for the comparable periods in 2001.  The decreases were primarily attributable to a significantreduction in non-Internet advertising relationships combined with a reductionin headcount and retention bonuses that were earned in 2001.

 

*General and Administrative.*  General and administrative expenses increased to $2.0 million forthe three months ended June 30, 2002, from $1.9 million for the comparableperiod in 2001 and decreased to $3.8 million for the six months ended June 30,2002, from $4.1 million for the comparable period in 2001. The increase for thethree months was primarily due to legal expenses incurred during the period inconnection with the pending litigation with eHealthInsurance.  The decrease for the six months ended June30, 2002 compared to same period in the prior year was due to reductions inpersonnel and related costs and decreased office and occupancy costs, partiallyoffset by increased legal expenses.

 

*Amortization of Intangible Assets and Other.*  Amortization of intangible assets and otherduring the three and six months ended June 30, 2001 was $0.7 million and $1.3million.  These amounts primarilyrepresent the amortization of intangibles associated with the acquisition ofcertain assets from Intuit in January 2001.

 

***Interest Expense***

 

Interest expense increased to$79,000 and $347,000 during the three and six months ended June 30, 2002,from $16,000 and $31,000 for the comparable periods in 2001. The increase ininterest expense was primarily attributable to imputed interest associated withthe long-term marketing commitments (fixed payments) recorded in conjunctionwith the acquisition of certain assets from Intuit in January 2001. Seeadditional discussion at Note 8 of notes to condensed consolidated financialstatements.

 

***Interest Income and Other***

 

Interest income and otherdecreased to $0.2 million and $0.4 million for the three and six months endedJune 30, 2002, from $0.6 million and $1.4 million for the comparable periods in2001. Interest income and other includes income earned on InsWeb’s investmentsand the gain (loss) on foreign currency exchange rate fluctuations associatedwith InsWeb investment in Finance All K.K. as well as a note payable to astrategic partner and stockholder incurred in connection with InsWeb’sinvestment in Finance All K.K. The decrease in interest income and other wasprimarily a result of decreased interest income due to lower average cash andshort-term investment balances during 2002 and, to a lesser extent, lowerinterest rates.

 

***Extraordinary Gain***

 

On March 28, 2002, InsWeb amendedits license and distribution agreement with Intuit.  Under the amended agreement, InsWeb will make the originallyagreed upon fixed payments (long–term marketing commitments) throughJuly 31, 2003.   The net result ofthis amended contract was a $9.3 million extraordinary gain, accounted for inInsWeb’s results of operations for the quarter ended March 31, 2002.  See additional discussion at Note 8 of notesto condensed consolidated financial statements.

 

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**Critical Accounting Policies**

 

InsWeb’s discussion and analysisof its financial condition and results of operations are based on InsWeb’sconsolidated financial statements which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires InsWeb to make estimates and judgmentsthat affect the reported amounts of assets and liabilities and the disclosureof contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period.InsWeb bases its estimates and judgments on historical experience and onvarious other factors that are believed to be reasonable under 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, InsWebmay have to record additional impairment charges not previously recognized.

 

***Cost-Method Investments.***  InsWeb holds a minority ownership interestin Finance All K.K., a privately-held corporation.  As of June 30, 2002, the carrying value of this investment was$1.7 million.  InsWeb would record aninvestment impairment charge if and when it believes an investment hasexperienced a decline in value that is other than temporary. Future adversechanges in market conditions or poor operating results of Finance All K.K.could result in losses or an inability to recover the carrying value of theinvestment that is not currently reflected in the investment’s carrying value,thereby possibly requiring an impairment charge in the 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, if any. InsWeb believes it has meritorious defenses with respect to theseclaims. 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 June 30, 2002, InsWeb’s principal source ofliquidity was $33.1 million in cash, cash equivalents and short–terminvestments, which decreased from $35.6 million as of December 31, 2001.  The decrease resulted from the use of $1.0million, $0.3 million and $1.1 million in operating, investing and financingactivities, respectively.

 

For the six months ended June 30, 2002, net cash usedin operating activities was $1.0 million compared to net cash used in operatingactivities of $7.1 million for the comparable period in 2001.  For the six months ended June 30, 2002,non-cash items included an extraordinary gain of $9.3 million, amortization ofintangibles and prepaid marketing costs of $0.8 million, and depreciation andamortization of assets of $1.2 million. A decrease in deferred revenue of $0.4 million offset by a decrease indeposits and other assets of $1.8 million (which was the result of the transferof $1.2 million to cash for the return of a leased-property’s security deposit)and an increase in accrued expenses of $0.5 million, also contributed to thecash used in operations for the six months ended June 30, 2002.

 

For the six months endedJune 30, 2002, net cash provided by investing activities was $2.1 million,which primarily consisted of the redemptions of short–term investmentsoffset by the purchase of short-term investments and $0.3 million ofexpenditures for property and equipment.

 

For the six months ended June 30, 2002, net cash usedin financing activities was $1.1 million. Cash outflows were attributable to a fixed payment made to Intuit formarketing commitments pursuant to the agreement entered into with Intuit inJanuary 2001, as amended in March 2002, offset partially by the proceeds fromthe issuance of common stock through InsWeb’s stock plans.

 

As of June 30, 2002, InsWebhad the following contractual commitments (in thousands):

 
|                                       |   | **Total** |   | **2002** |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **Thereafter** |   |
|--------------------------------------------|--------|-----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------------|--------|
|                                       |   |      |   |     |   |     |   |     |   |     |   |     |   |           |   |
| Long-term marketing commitment with Intuit |   | $         | 3,500  |     | $      | 1,500    |   | $        | 2,000  |     | $      | —   |   | $              | — |   | $ | — |   | $ | — |   |
| Operating leases                           |   | 23,936    |   | 1,637    |   | 3,360    |   | 3,356    |   | 3,257    |   | 3,391    |   | 8,935          |   |
| Other marketing commitments                |   | 567       |   | 400      |   | 167      |   | —   |   | —   |   | —   |   | —         |   |
| Promissory note payable to stockholder     |   | 1,252     |   | 1,252    |   | —   |   | —   |   | —   |   | —   |   | —         |   |
|                                       |   | $         | 29,255 |     | $      | 4,789    |   | $        | 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 IntuitInternet traffic, payable on a quarterly basis.

 

In July 2002, InsWeb andits sub-lessee agreed to amend the sublease covering portions of the propertyInsWeb formerly occupied as its headquarters in Redwood City.  Under the terms of the amendment, thesub-lessee has agreed to rent the entire premises for the entire remaining termof InsWeb’s lease (through September 2008). All rent and operating expenses otherwise payable by InsWeb to thelandlord will be paid directly by the sub-lessee.  As a result, InsWeb anticipates a reduction in its operatinglease commitments of $11.6 million throughout the remainder of the lease.  However, in the event that the sub-lesseedefaults on the amended sublease agreement, InsWeb would continue to beresponsible to make the required lease payments during the remaining term ofthe lease agreement.

 

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

 

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**Factors That May Affect Our Future Performance**

 

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

 

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

 

We were incorporated inFebruary 1995, but we did not begin to generate significant transactionfees from our online marketplace until 1998. Our limited operating historymakes an evaluation of our future prospects very difficult. An investor in ourcommon stock must consider the uncertainties frequently encountered by earlystage companies in new and rapidly evolving markets. These uncertaintiesinclude:

 

•                  an evolving and unpredictablebusiness model, which makes prediction of future results uncertain and aninvestment in our common stock highly speculative;

•                  the development of comparableservices by competitors, which may reduce our market share;

•                  the uncertainty of the extent towhich the consumer market will adopt the Internet as the preferred medium forcomparison shopping for and purchase of insurance products, which may limit ourability to generate revenue from consumers that visit our online marketplace orour insurance agency;

•                  our potential inability tosuccessfully manage  growth, which couldlead to management distractions and increased operating expenses;

•                  our ability to retain keyemployees; and

•                  our reliance on key customers andability to retain customers.

 

To address these uncertainties,we must, among other things:

 

•                  refine our business model;

•                  work to expand the efficienciesand geographic coverage of our agency activities;

•                  enhance the brand identity of ouronline insurance marketplace;

•                  maintain and increase ourstrategic alliances with other online businesses to increase traffic to ourwebsite;

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

•                  continue to ensure that ourparticipating insurance companies offer competitive insurance products;

•                  satisfy legal and regulatoryrequirements applicable to the insurance industry; and

•                  continue to address consumerprivacy concerns.

 

Our business strategy may not besuccessful and we may not be able to successfully address these uncertainties.Moreover, our ability to take the foregoing steps may be hampered by ourlimited financial resources should we fail to rapidly increase revenues orshould increased revenues be more than offset by increased operating expenses.

 

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

 

Given planned investment levels,our ability to achieve profitability will depend upon our ability to generateand sustain substantially increased revenues. As a result, we believe that wewill incur operating losses for the foreseeable future. We incurred operatinglosses of $46.0 million for the year ended December 31, 2001,$53.6 million for the year ended December 31, 2000, and$38.4 million for the year ended December 31, 1999. For the sixmonths ended June 30, 2002 we incurred an operating loss of $5.7 million.  As of June 30, 2002, our accumulateddeficit was $166.4 million. Our operating results for future periods aresubject to numerous uncertainties, and we may not achieve sufficient revenuesto become profitable. Even if we achieve profitability, we may not sustain orincrease profitability on a quarterly or annual basis in the future. If we areunable to achieve profitability, or if our profitability is delayed we may needto seek additional financing to continue our business operations. Suchfinancing could be on terms that are dilutive to our existing stockholders orcould involve the issuance of securities that have rights and preferences thatare senior to those associated with our common stock. Moreover, if suchfinancing were not available or were available only upon terms that wereunacceptable to us, we could be required to significantly curtail ouroperations.

 

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

 

Due to our limited operatinghistory, the emerging nature of the market in which we compete and the highproportion of our revenues that are derived from consumer traffic on ourwebsite, our future revenues are inherently difficult to forecast. We believethat period-to-period comparisons of our operating results may not bemeaningful, and you should not rely upon them as an indication of our futureperformance. Moreover, our expense levels are based largely on our investmentplans and estimates of future revenues. We may be unable to adjust our spendingto compensate for an unexpected shortfall in revenues. Accordingly, anysignificant shortfall in revenues relative to our planned expenditures wouldharm our results of operations and could cause our stock price to fall sharply,particularly following quarters in which our operating results fail to meet theexpectations of securities analysts or investors.

 

Factors that may causefluctuations in our operating results include the following, many of which areoutside our control:

 

•                  We may experience consumerdissatisfaction with our online marketplace as we add or change features, or asthe insurance coverage offered by participating insurance companies varies;

•                  Consumer traffic on our onlinemarketplace may decline as a result of the announcement or introduction of acompeting online insurance marketplace or other new websites, products orservices offered by our competitors;

•                  Such consumer traffic may alsofluctuate as a result of changes in consumer acceptance of Internet commerce,particularly in connection with shopping for insurance;

•                  Our revenues may be harmed if welose one or more significant insurance company relationships or if any of ourparticipating insurance companies merge with one another;

•                  Use of the Internet by consumersmay fluctuate due to seasonal factors or other uncontrollable factors affectingconsumer behavior and may be affected by slow Internet performance due totechnical problems or traffic bottlenecks on the network;

•                  Our ability to convert sitevisits into transaction fees and/or revenue from insurance agency activitiesmay fluctuate due to changes in our user interface or other features on oursite or changes in the underwriting criteria used by our participatinginsurance companies to determine which consumers will be offered quotes; and

•                  Our ability to generatetransaction fees and/or revenue from insurance agency activities may also beharmed due to technical difficulties on our website that hamper a consumer’sability to start or complete a shopping session.

 

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

 

We have experienced seasonalityin our business associated with general slowness in the insurance industryduring the year-end holiday period. We expect to continue to experienceseasonality as our business matures. Because of this seasonality, investors maynot be able to predict our annual operating results based on aquarter-to-quarter comparison of our operating results. We believe seasonalitywill have an ongoing impact on our business.

 

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

 

Automobile insurance accountedfor approximately 67% of our transaction revenues in 2001, approximately 69% in2000 and approximately 78% in 1999. For the six months ended June 30, 2002automobile insurance accounted for approximately 81% of our transactionrevenues.  We anticipate that automobileinsurance will continue to account for a substantial portion of our revenuesfor the foreseeable 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 brand and expand our brandrecognition, our ability to draw consumers to our website will be limited**

 

A growing number of websitesoffer services that are similar to and competitive with the services offered onour online insurance marketplace. Therefore, a positive recognition of ourbrand is critical to attracting additional consumers to our website,strengthening our relationships with participating insurance companies andattracting new insurance companies. In order to attract and retain consumersand insurance companies and to promote and maintain our brand, through thefirst quarter of 2000, we increased our financial commitment to creating andmaintaining prominent brand awareness. Beginning in the second quarter of 2000,our consumer-marketing program has been reduced and our radio and televisionmarketing campaigns have been discontinued. Our current marketing programconsists of the maintenance of certain network online relationships and otherselective cost effective marketing campaigns, designed to maintain consumerawareness of InsWeb and our online insurance marketplace. If our marketing effortsdo not generate a corresponding increase in revenues or we otherwise fail tosuccessfully promote our brand, or if these efforts require excessiveexpenditures, our business will be harmed. Moreover, if visitors to our websitedo not perceive our existing services or the products and services of ourparticipating insurance companies to be of high quality, or if we alter ormodify our brand image, introduce new services or enter into new businessventures that are not favorably received, the value of our brand could beharmed.

 

**Our plans to offer additional services could result insignificant expenditures, and we may not generate sufficient revenue to offsetthese expenditures**

 

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

 

•                  performing activities on behalf of an increased number of insurancecompanies as an authorized agent;

•                  adding new insurance companies and helping our existing insurancecompanies to expand the number of states in which they are offering coverage inour online marketplace;

•                  increasing the level of technology integration between our platform andthe systems of our participating insurance companies; and

•                  continuing our market presence through relationshipswith Internet portals, financial institutions, websites oriented to activitiesthat involve the purchase of insurance, such as automobile shopping sites, andother 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:

 

•                  undertake more extensive marketing campaigns for their brands andservices;

•                  devote more resources to website and systems development;

•                  adopt more aggressive pricing policies; and

•                  make more attractive offers to potential employees, online companiesand third–party service 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.

 

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**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. If we are unableto provide consumers with high-quality products and services, the value of ourbrand may be harmed and the number of consumers using our services may decline.We have from time to time received complaints from consumers who have notreceived a timely response to a request for an insurance quote. Although wehave taken steps to increase responsiveness to consumer requests, these stepsand future efforts we may make may not be successful. In addition, if any ofour major participating insurance companies were to discontinue their business,be downgraded by insurance company rating services or be financially harmed bytrends in the insurance industry, our brand may be harmed.

 

**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. Revenues from Amica,GE Financial Assurance and American Family accounted for 18%, 13% and 8%,respectively, of our revenues for the six months ended June 30, 2002.  In May 2000, State Farm discontinuedparticipating in InsWeb’s marketplaces for automobile, term life, homeowners,condominium and renters insurance. Should one or more of our other key insurance company partners cease toparticipate in our online marketplace, change its underwriting criteria orgeographic coverage in a way that reduces the proportion of consumers that areoffered quotes from that insurance company, or suffer a significant decline inits ratings, our operating results could be materially harmed. Because of thebroad market presence of some of our participating insurance companies, weexpect to continue to generate a substantial portion of our revenues from alimited number of insurance companies for the foreseeable future. AlthoughInsWeb continually seeks new carriers to participate in the online marketplace,we may be unable to add any new 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 June 30, 2002, therewere 10 jurisdictions in which three or fewer insurance companies were offeringautomobile insurance quotes on our online marketplace. No automobile insurancequotes are available in New Jersey, North Carolina and Massachusetts as ofJune 30, 2002.  If any insurancecompany participating in a number of jurisdictions discontinued orsignificantly reduced its participation in our online marketplace, theattractiveness of the marketplace to consumers in these jurisdictions would begreatly diminished.

 

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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. Todevelop company–sponsored quotes for consumers, the integration requireseither the development of a customized interface with the carrier’s own ratingsystem, accessing a third–party rating engine of the carrier’s choice, oradding the carrier’s rating information into InsWeb’s proprietary ratingengines. Though integration into our agency operations may require fewerresources to implement than integration of an insurance company into our onlinemarketplace, potential participating insurance companies may not be willing toinvest the time and resources necessary to achieve this integration, or we maynot be able to overcome the technological difficulties associated with, ordevote the time and resources necessary to, successfully integrate theinsurance company into our online marketplace or our agency operations.

 

**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 tocontinue to experience, reductions in the level of participation in ourmarketplace or complete termination by participating insurance companies. Thesereductions in participation, terminations, or an inability to attractadditional insurance companies to our marketplace could materially affect ourrevenues and harm our business.

 

**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, eHealthinsuranceamended its suit to add allegations that InsWeb interfered with its businessrelationships. The complaint as amended seeks unspecified compensatory andpunitive damages. InsWeb filed a counterclaim in March 2001 alleging thateHealthInsurance wrongfully terminated the linking agreement and pursued acourse of conduct aimed at damaging InsWeb’s business. The outcome of thelawsuit is uncertain. Even if InsWeb is successful in its counterclaim andreceives a significant judgment at trial, it may be difficult to collect.Moreover, our business would be harmed if a significant portion of our assetswould have to be used to satisfy an adverse judgment, and an adverse judgmentcould damage our reputation and make it more difficult to maintain or expandour business relationships. Although InsWeb maintains customary types ofinsurance, these policies may not provide adequate coverage for the types ofclaims asserted by eHealthInsurance.  An unfavorable outcome could have a materialadverse effect on InsWeb’s financial condition, results of operations or cashflows.

 

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

 

A class action lawsuit was filed on December 5, 2001in the U.S. District Court for the Southern District of New York on behalf ofpurchasers 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 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 is unsuccessful**

 

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 not continueto generate a substantial amount of new traffic on our website, or the revenuesgenerated by these relationships may be insufficient to justify our paymentobligations. We have experienced occasional fluctuations in the traffic fromour 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.

 

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 six months endedJune 30, 2002 we received approximately 12.2% 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 years ended December 31,2001, 2000 and 1999, respectively. For the six months ended June 30, 2002, weestimate that traffic from these relationships accounted for 12.1% of ourrevenues.  In January 2001, we enteredinto an agreement with Intuit under which InsWeb serves as the exclusiveaggregator of online consumer insurance services for Quicken.com®, QuickenInsurance andcertain Quicken consumer desktop products. We did not renew our agreement withMSN for 2002, and our status as exclusive provider to Yahoo! and AOL wasconverted to non–exclusive, effective November 1, 2001 andJanuary 1, 2002, respectively. Our ability to increase our revenues willdepend, in part, on our ability to generate increased traffic to our web-sitethrough these significant online relationships.

 

Most of our relationships with online companies,excluding Yahoo!,  Lycos, AOL andIntuit  are terminable by either partyon 30 to 90 days’ notice. We may not be able to negotiate or renewmarketing agreements with online companies on terms that are acceptable to us.The termination, non-renewal or renewal on unfavorable terms of a relationshipfrom which we generate significant traffic to our website would harm ourbusiness. If the recent trend of failing online companies continues, thetraffic currently being received as well as the ability to attract new consumertraffic to our site could be harmed. Additionally, an online company’s failureto maintain efficient and uninterrupted operation of its computer andcommunications hardware systems would likely reduce the amount of traffic wereceive at our site, harming our business.

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**Laws and regulations that govern 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 and regulationsthat often vary from state to state. If we fail to comply with these rules andregulations, we, an insurance company doing business with us, our officers, oragents with whom we contract, could be subject to various sanctions, includingcensure, fines, a cease-and-desist order or other penalties. This risk, as wellas changes in the regulatory climate or the enforcement or interpretation ofexisting law, could expose us to additional costs, including indemnification ofparticipating insurance companies for their costs, and could require changes toour business or otherwise harm our business. Furthermore, because theapplication of online commerce to the consumer insurance market is relativelynew, the impact of current or future regulations on InsWeb’s business isdifficult 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 Act eliminated theselegislative barriers between segments of the financial services industry.Although insurance will still be regulated primarily by the states, insuranceentities that become part of a financial services institution may be indirectlyaffected by the federal regulatory requirements pertaining to banks orsecurities 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 isable to 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 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 anduse of personal information by insurance companies, agents, or insuranceservice organizations. Failure to adhere to the growing body of privacyregulations could result in administrative actions or private litigation andharm our business.

 

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**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 anumber of technical challenges, particularly with respect to databasereplications, which we may not be able to address successfully. Although wecarry property and business interruption insurance, our coverage may not beadequate to compensate us for all losses that may occur. Our servers may alsobe vulnerable to computer viruses, physical or electronic break-ins and similardisruptions.

 

**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 website servers communicatewith these 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 websiteservers and the insurance company’s system, or an excess of data traffic onthat system, could result in a delay in the delivery of e-mail quotes or couldcause an 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.

 

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

 

Our future success is substantially dependent on thecontinued services and continuing contributions of our senior management andother key personnel, particularly Hussein A. Enan, our Chairman of our Board.Mark P. Guthrie, our President and Chief Executive Officer, and the loss of theservices of any of our executive officers or other key employees could harm ourbusiness.

 

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We have no long-term employment agreements with any ofour key personnel, although Mr. Guthrie is entitled to certain severancebenefits should his employment be immediately terminated. We maintain a$2 million life insurance policy on each of Mr. Enan andMr. Guthrie that names us as the beneficiary, but maintain no similarinsurance on any of our other key employees. Additionally, InsWeb has grantedstock options as incentives to executive officers and new employees, includingMr. Guthrie, and certain other key personnel. As the value of theseincentives are highly dependent on an increase in the market price of ourcommon stock, we may be unable to retain such key employees, nor retain orrecruit other officers and key 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 limit ourability 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 and protocolsrequired to handle increased levels of Internet activity, or due to increasedgovernmental 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 acquisitionscould result in potentially dilutive issuances of equity securities or theincurrence of debt, contingent liabilities or amortization

 

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expenses related to goodwill and other intangible assets, any of whichcould harm our business.

 

**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-party technologiesand services into our online marketplace, and if the providers of thesetechnologies 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.  QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.**

 

There have been no materialchanges to the Company’s disclosures related to certain market risks asreported under Part II, Item 7A, “Quantitative and Qualitative DisclosuresAbout Market Risk,” in the Annual Report of InsWeb to the U.S. Securities andExchange Commission on Form 10-K for the year ended December 31, 2001.

 

 

**PART II: OTHER INFORMATION**

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITYHOLDERS**

 

InsWeb’s 2002 Annual Meetingof Stockholders was held on May 28, 2002. At the meeting, Hussein A. Enan, thenominee of management, was elected to serve as a Class III director, untilInsWeb’s 2008 Annual Meeting of Stockholders, by a vote of 6,047,967 shares forand 112,236 shares witheld.

 

The following additionalitems were voted upon at the meeting:

 

1.               A proposal toratify the appointment of Ernst & Young LLP as InsWeb’s independent auditorfor the year ending  December 31, 2002was approved by a vote of 6,114,467 shares for; 44,918 shares against; and 818shares abstaining.

 

2.               A proposal toamend InsWeb’s 1997 Stock Option Plan to (i) increase the size of options grantedautomatically to directors for attendance at meetings of Board of Directors andcommittees of the Board and (ii) to limit to 250,000 shares the maximum numberof shares of Common Stock for which options may be granted to any employee inthe fiscal year of the employee’s commencement of service and to 250,000 sharesin any subsequent fiscal year was approved by a vote of 5,385,569 shares for;759,725 shares against and 14,909 shares abstaining.

 

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

 

(a)            Exhibits

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

 

(b)           Reports on Form 8-K: None

 

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SIGNATURE

 

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

 

 
| Dated: August 14, 2002 | **INSWEB CORPORATION  (Registrant)**         |
|------------------------|----------------------------------------------|
|                   |                                         |
|                   |                                         |
|                   | /s/  William D. Griffin                      |
|                   |                                         |
|                   | William  D. Griffin  Chief Financial Officer |

 

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