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**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-Q**

 
| **x**                                                                                            | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **                                                                                       | ** ** | ** **                                                                                               |
| **For the quarterly period ended June 30, 2008**                                            |
| ** **                                                                                       | ** ** | ** **                                                                                               |
| **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**                                                               |

 

**INSWEBCORPORATION**

(Exact name of Registrant as specified in itscharter)

 

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

 

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Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Sections 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer  o                     |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company x |
| (Do not check if a  smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined by Rule 12b-2 of theExchange Act).

Yes o No x

 

Thenumber of outstanding shares of the Registrant’s Common Stock, par value $0.001per share, on July 30, 2008 were 4,696,091 shares.

 

 

 

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**FORM 10-Q**

**INSWEB CORPORATION**

**INDEX**

 
| **PART I**  | **FINANCIAL  INFORMATION**                                                                                       | **3**  |
|------------------|------------------------------------------------------------------------------------------------------------------|--------|
| ITEM 1:          | Financial Statements (unaudited)                                                                                 | 3      |
|             | Condensed  Consolidated Balance Sheets as of June 30, 2008 and December 31,  2007                      | 3      |
|             | Condensed  Consolidated Statements of Operations for the three and six months ended  June 30, 2008 and 2007 | 4      |
|             | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30,  2008 and 2007           | 5      |
|             | Notes to  Condensed Consolidated Financial Statements                                                            | 6      |
| ITEM 2:          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                      | 12     |
| ITEM 3:          | Quantitative  and Qualitative Disclosures About Market Risk                                                      | 19     |
| ITEM 4T:         | Controls and  Procedures                                                                                         | 19     |
|             |                                                                                                             |   |
| **PART II** | **OTHER  INFORMATION**                                                                                           | **19** |
| ITEM 1:          | Legal Proceedings                                                                                                | 19     |
| ITEM 1A:         | Risk Factors                                                                                                     | 19     |
| ITEM 6:          | Exhibits                                                                                                         | 19     |
|             |                                                                                                             |   |
| Signature        |                                                                                                             | 20     |
| Certifications   |                                                                                                             |   |

 

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

 

**ITEM 1.****                 ****FINANCIAL STATEMENTS**

 

**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 

*(in thousands)*

*(unaudited)*

 
| ** **                                                                                                                                     | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                                                     |       |                    |       |                        |       |
| Current assets:                                                                                                                                |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                                      |       | $                       | 10,674     |                        | $          | 10,777 |   |
| Accounts receivable, net                                                                                                                       |       | 2,360                   |       | 2,428                       |       |
| Prepaid expenses and other current assets (including related party  receivable of $0 at June 30, 2008 and $48 at December 31, 2007.) |       | 469                     |       | 596                         |       |
| Total current assets                                                                                                                           |       | 13,503                  |       | 13,801                      |       |
| Property and equipment, net                                                                                                                    |       | 270                     |       | 257                         |       |
| Other assets                                                                                                                                   |       | 293                     |       | 75                          |       |
| Total assets                                                                                                                                   |       | $                       | 14,066     |                        | $          | 14,133 |   |
|                                                                                                                                           |       |                    |       |                        |       |
| **Liabilities and stockholders’ equity**                                                                                                  |       |                    |       |                        |       |
| Current liabilities:                                                                                                                           |       |                    |       |                        |       |
| Accounts payable                                                                                                                               |       | $                       | 2,288      |                        | $          | 2,118 |   |
| Accrued expenses                                                                                                                               |       | 1,594                   |       | 1,426                       |       |
| Deferred revenue                                                                                                                               |       | 239                     |       | 246                         |       |
| Total current liabilities                                                                                                                      |       | 4,121                   |       | 3,790                       |       |
|                                                                                                                                           |       |                    |       |                        |       |
| Commitments and  contingencies                                                                                                                 |       |                    |       |                        |       |
|                                                                                                                                           |       |                    |       |                        |       |
| Stockholders’ equity:                                                                                                                     |       |                    |       |                        |       |
| Common stock                                                                                                                                   |       | 8                       |       | 8                           |       |
| Paid-in capital                                                                                                                                |       | 206,117                 |       | 206,208                     |       |
| Treasury stock                                                                                                                                 |       | (6,334                  | )          | (6,334                      | )          |
| Accumulated deficit                                                                                                                            |       | (189,846                | )          | (189,539                    | )          |
| Total stockholders’ equity                                                                                                                |       | 9,945                   |       | 10,343                      |       |
| Total liabilities and stockholders’ equity                                                                                                |       | $                       | 14,066     |                        | $          | 14,133 |   |

 

See accompanying notes.

 

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**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

 

*(in thousands, except per share amounts)*

*(unaudited)*

 
| ** **                                                   | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                   | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues:                                                    |       |                                            |       |                                          |       |   |   |   |   |
| Transaction fees                                             |       | $                                               | 8,751      |                                          | $          | 8,063 |   | $ | 21,722 |   | $ | 16,106 |   |
| Other                                                        |       | 58                                              |       | 66                                            |       | 119 |   | 133 |   |
| Total revenues                                               |       | 8,809                                           |       | 8,129                                         |       | 21,841 |   | 16,239 |   |
|                                                         |       |                                            |       |                                          |       |   |   |   |   |
| Operating expenses:                                          |       |                                            |       |                                          |       |   |   |   |   |
| Direct marketing                                             |       | 6,238                                           |       | 4,597                                         |       | 15,543 |   | 9,125 |   |
| Sales and marketing                                          |       | 1,433                                           |       | 1,327                                         |       | 2,728 |   | 2,805 |   |
| Technology                                                   |       | 811                                             |       | 777                                           |       | 1,627 |   | 1,653 |   |
| General and administrative                                   |       | 1,373                                           |       | 1,323                                         |       | 2,399 |   | 2,225 |   |
| Total operating expenses                                     |       | 9,855                                           |       | 8,024                                         |       | 22,297 |   | 15,808 |   |
| Income from operations                                       |       | (1,046                                          | )          | 105                                           |       | (456 | ) | 431 |   |
| Interest income                                              |       | 60                                              |       | 107                                           |       | 149 |   | 179 |   |
| Other income                                                 |       | —                                          |       | 2                                             |       | — |   | 6 |   |
|                                                         |       |                                            |       |                                          |       |   |   |   |   |
| Income (loss) before  income taxes                           |       | (986                                            | )          | 214                                           |       | (307 | ) | 616 |   |
|                                                         |       |                                            |       |                                          |       |   |   |   |   |
| Provision (benefit) for  income taxes                        |       | (9                                              | )          | —                                        |       | — |   | — |   |
|                                                         |       |                                            |       |                                          |       |   |   |   |   |
| Net income (loss)                                            |       | $                                               | (977       | )                                             | $          | 214 |   | $ | (307 | ) | $ | 616 |   |
|                                                         |       |                                            |       |                                          |       |   |   |   |   |
| Net income (loss) per  share:                                |       |                                            |       |                                          |       |   |   |   |   |
| Basic                                                        |       | $                                               | (0.21      | )                                             | $          | 0.05 |   | $ | (0.07 | ) | $ | 0.15 |   |
| Diluted                                                      |       | $                                               | (0.21      | )                                             | $          | 0.04 |   | $ | (0.07 | ) | $ | 0.13 |   |
|                                                         |       |                                            |       |                                          |       |   |   |   |   |
| Weighted-average shares  used in computing per share amounts |       |                                            |       |                                          |       |   |   |   |   |
| Basic                                                        |       | 4,689                                           |       | 4,340                                         |       | 4,665 |   | 4,208 |   |
| Diluted                                                      |       | 4,689                                           |       | 5,627                                         |       | 4,665 |   | 4,840 |   |

 

Seeaccompanying notes.

 

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**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

 

*(in thousands)*

*(unaudited)*

 
| ** **                                                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                      | ** ** | **2007** | ** ** |
| Cash flows from operating activities:                                              |       |                                          |       |   |   |
| Net income (loss)                                                                  |       | $                                             | (307       | ) | $ | 616 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                                          |       |   |   |
| Share-based compensation                                                           |       | 412                                           |       | 574 |   |
| Depreciation and amortization                                                      |       | 74                                            |       | 84 |   |
| Net changes in operating assets and liabilities:                                   |       |                                          |       |   |   |
| Accounts receivable                                                                |       | 69                                            |       | (855 | ) |
| Prepaid expenses and other current assets                                          |       | 126                                           |       | 6 |   |
| Other assets                                                                       |       | —                                        |       | 2 |   |
| Accounts payable                                                                   |       | 170                                           |       | 94 |   |
| Accrued expenses                                                                   |       | 168                                           |       | 42 |   |
| Deferred revenue                                                                   |       | (7                                            | )          | (68 | ) |
| Net cash provided by operating activities                                          |       | 705                                           |       | 495 |   |
|                                                                               |       |                                          |       |   |   |
| Cash flows from investing activities:                                              |       |                                          |       |   |   |
| Purchases of property and equipment                                                |       | (80                                           | )          | (6 | ) |
| Purchase of intangible assets                                                      |       | (225                                          | )          | — |   |
| Net cash used in investing activities                                              |       | (305                                          | )          | (6 | ) |
|                                                                               |       |                                          |       |   |   |
| Cash flows from financing activities:                                              |       |                                          |       |   |   |
| Proceeds from issuance of common stock through stock plans                         |       | 347                                           |       | 1,054 |   |
| Settlement of equity awards                                                        |       | (850                                          | )          | — |   |
| Net cash provided by (used in) financing activities                                |       | (503                                          | )          | 1,054 |   |
| Net increase (decrease) in cash and cash equivalents                               |       | (103                                          | )          | 1,543 |   |
| Cash and cash equivalents, beginning of period                                     |       | 10,777                                        |       | 6,750 |   |
| Cash and cash equivalents, end of period                                           |       | $                                             | 10,674     |   | $ | 8,293 |   |

 

See accompanying notes.

 

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**INSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

***(unaudited)***

 

**1. Business of InsWeb**

 

InsWeb Corporationoperates an online insurance marketplace that enables consumers to obtainmultiple insurance quotes for a variety of insurance products, includingautomobile, homeowners and term life. InsWeb’s marketplace electronicallymatches consumers and insurance providers. InsWeb has combined knowledge of theinsurance industry, technological expertise and close relationships withinsurance companies, agents and other providers to develop an integrated onlinemarketplace. InsWeb’s marketplace enables consumers to research insurance-relatedtopics, search for, analyze and compare insurance products, and apply for andreceive quotes for coverage for automobile, homeowners and term life insurance.Management believes that InsWeb provides insurance providers with pre-qualifiedconsumers at attractive acquisition costs, with the scalable, cost-efficientdistribution capabilities of InsWeb’s Internet-based model.

 

InsWeb is subject to allof the risks inherent in the electronic commerce industry and special risksrelated to the online insurance industry. These risks include, but are notlimited to, uncertain economic conditions which could result in lower growthrates, the changing nature of the electronic commerce industry, variations inthe availability and cost of acquiring consumer traffic, unpredictability offuture revenues, reliance on key customers —insurance carriers, agents andother providers – who are themselves subject to volatility in their operatingcycles, and reliance on a third party intermediary who provides leads to local insuranceagents on InsWeb’s behalf. These risks and uncertainties, among others, couldcause InsWeb’s actual results to differ materially from historical results orthose currently anticipated. In light of InsWeb’s ongoing modifications to itsbusiness model to better capitalize on its position as a leading insuranceportal, InsWeb believes that period-to-period comparisons of its operatingresults are not necessarily meaningful and should not be relied upon as anindication of future performance. Moreover, there is no assurance that InsWebwill be able to return to and sustain profitability.

 

**2. Basis of Presentation**

 

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

 

Theaccompanying unaudited interim financial statements have been prepared inaccordance with U.S. generally accepted accounting principles for interimfinancial information and with the instructions to Form 10-Q and Rule 10-01of Regulation S-X. Accordingly, they do not contain all of the information and footnotesrequired by U.S. generally accepted accounting principles for completefinancial statements. In the opinion of management, the accompanying unauditedinterim condensed consolidated financial statements reflect all adjustments,which include only normal recurring adjustments, necessary to present fairlyInsWeb’s financial position as of June 30, 2008 and the results ofoperations and cash flows for the three and six months ended June 30, 2008and 2007. The financial data and other information disclosed in these notes tothe condensed consolidated financial statements related to these periods areunaudited. The results for the three and six months ended June 30, 2008are not necessarily indicative of the results to be expected for any futureperiod.

 

Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and notes thereto included in InsWeb’sAnnual Report on Form 10-K and other information as filed with theSecurities and Exchange Commission. Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States have been condensed oromitted pursuant to such rules and regulations. The June 30, 2008condensed consolidated balance sheet was derived from unaudited financialstatements, but does not include all disclosures required by accountingprinciples generally accepted in the United States. However, the Companybelieves the disclosures are adequate to make the information presented notmisleading.

 

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**I****NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

In September 2006,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards No. 157, *FairValue Measurements*(“Statement 157”). Statement 157 does not requireany new fair value measurements but clarifies the fair value definition,establishes a fair value hierarchy that prioritizes the information used todevelop assumptions used for measuring fair value, and expands disclosuresabout fair value measurements. Statement 157 clarifies that fair value is theexchange price in an orderly transaction between market participants to sellthe asset or transfer the liability in the market. The fair value hierarchygives the highest priority to quoted prices in active markets and the lowestpriority to unobservable data, for example, the reporting entity’s own data. Itemphasizes that fair value is a market-based measurement, not anentity-specific measurement, and a fair value measurement should therefore bebased on the assumptions that market participants would use in pricing theasset or liability. Statement 157 expands disclosures about the use of fair valueto measure assets and liabilities in interim and annual periods subsequent toinitial recognition, including the inputs used to measure fair value and theeffect of such measurements on earnings for the period.

 

At its February 6,2008 meeting, the FASB decided to (i) partially defer the effective dateof Statement 157 for one year for certain nonfinancial assets and nonfinancialliabilities and (ii) remove certain leasing transactions from the scope ofStatement 157. The partial deferral is applicable to nonfinancial assets andnonfinancial liabilities that are recognized or disclosed at fair value in thefinancial statements on a nonrecurring basis. Companies will still need toapply Statement 157’s recognition and disclosure requirements for financialassets and financial liabilities or for nonfinancial assets or nonfinancialliabilities that are remeasured at least annually. The FASB also decided toamend Statement 157 to exclude Statement No. 13, *Accounting for Leases*, and its relatedinterpretive accounting pronouncements that address leasing transactions. Theexclusion does not apply to fair value measurements of assets and liabilitiesrecorded as a result of a lease transaction but measured pursuant to otherpronouncements within the scope of Statement 157.

 

Statement 157 iseffective for financial statements issued for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. InsWeb adopted Statement157 at the beginning of 2008. There was no material impact to the Company’sfinancial statements due to the adoption of Statement 157.

 

In February 2007,the FASB issued Statement of Financial Accounting Standards No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities, Including an Amendment of FASB Statement No. 115*(“Statement159”). Statement 159 allows entities to voluntarily choose to measure manyfinancial assets and financial liabilities as well as certain nonfinancialinstruments that are similar to financial instruments (collectively, eligibleitems) at fair value (the fair value option). The election is made on aninstrument-by-instrument basis and is irrevocable. If the fair value option iselected for an instrument, Statement 159 specifies that all subsequent changesin fair value for that instrument shall be reported in earnings and iseffective as of the beginning of an entity’s first fiscal year that beginsafter November 15, 2007. Upon initial adoption, Statement 159 providesentities with a one-time chance to elect the fair value option for eligibleitems. The effect of the first measurement to fair value should be reported asa cumulative-effect adjustment to the opening balance of retained earnings oraccumulated deficit in the year the statement is adopted. InsWeb adopted Statement159 at the beginning of 2008 and did not make any elections for fair valueaccounting. Therefore, InsWeb did not record a cumulative-effect adjustment toits opening accumulated deficit balance.

 

**3. Share-Based Payments**

 

InsWeb maintains astock option plan and an employee stock purchase plan. The following table setsforth the total share-based compensation expense relating to these plansincluded in InsWeb’s operating expenses in its condensed consolidatedstatements of operations for the three and six months ended June 30, 2008and 2007 (in thousands):

 
| ** **                 | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                 | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                       |       |                                            |       |                                          |       |   |   |   |   |
| Technology                 |       | $                                               | 1          |                                          | $          | 17 |   | $ | 55 |   | $ | 49 |   |
| Sales and marketing        |       | 37                                              |       | 59                                            |       | 131 |   | 114 |   |
| General and administrative |       | 40                                              |       | 184                                           |       | 226 |   | 411 |   |
|                       |       | $                                               | 78         |                                          | $          | 260 |   | $ | 412 |   | $ | 574 |   |

 

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**I****NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

**4. Concentrationof Risk — Significant Customers**

 

Forthe three and six months ended June 30, 2008, three customers accountedfor 16%, 13% and 11% and 17%, 15%, and 11% of total revenues, respectively. For the three and six monthsended June 30, 2007, three customers accounted for 16%, 15% and 12% and15%, 13%, and 11% of total revenues, respectively. At June 30, 2008, two customers accounted for 20% and 17% of accountsreceivable, respectively. At December 31, 2007, two customers each accounted for 17% of accountsreceivable, respectively.

 

**5. Accrued Expenses**

 

Accrued expenses consistof the following (in thousands):

 
| ** **                             | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                             | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Amounts due to fee sharing partners    |       | $                       | 657        |                        | $          | 373 |   |
| Deferred rent                          |       | 322                     |       | 374                         |       |
| Accrued employee compensation          |       | 483                     |       | 402                         |       |
| Accrued lease obligations (see Note 8) |       | 120                     |       | 248                         |       |
| Other                                  |       | 12                      |       | 29                          |       |
|                                   |       | $                       | 1,594      |                        | $          | 1,426 |   |

 

**6. Comprehensive Income (Loss)**

 

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

 
| ** **                                                                     | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                     | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                     | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                                                              |       | $                                               | (977       | )                                             | $          | 214 |   | $ | (307 | ) | $ | 616 |   |
| Other comprehensive income - change in unrealized gain or loss on  investments |       | —                                          |       | —                                        |       | — |   | — |   |
| Comprehensive income (loss)                                                    |       | $                                               | (977       | )                                             | $          | 214 |   | $ | (307 | ) | $ | 616 |   |

 

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**I****NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

**7. Net Income (Loss) Per Share**

 

Basic net income (loss)per share is computed using the weighted-average number of shares of commonstock outstanding. Diluted earnings per share is a measure of the potentialdilution that would occur if stock options had been exercised.

 

The following tablereconciles the numerator and denominator used to calculate basic and dilutednet income per share of common stock:

 
| ** **                                                            | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| **(In thousands, except per share amounts)** | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Numerator for basic and diluted net income (loss) per share:          |       |                                            |       |                                          |       |   |   |   |   |
| Net income (loss) available to common stockholders                    |       | $                                               | (977       | )                                             | $          | 214 |   | $ | (307 | ) | $ | 616 |   |
|                                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Denominator for net income (loss) per share:                          |       |                                            |       |                                          |       |   |   |   |   |
| Basic—weighted average shares of common stock outstanding        |       | 4,689                                           |       | 4,340                                         |       | 4,665 |   | 4,208 |   |
| Dilutive effect of employee stock options                             |       | 1,053                                           |       | 927                                           |       | 1,045 |   | 632 |   |
| Diluted                                                               |       | 5,742                                           |       | 5,267                                         |       | 5,710 |   | 4,840 |   |
|                                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Net income (loss) per share:                                          |       |                                            |       |                                          |       |   |   |   |   |
| Basic—as reported                                                |       | $                                               | (0.21      | )                                             | $          | 0.05 |   | $ | (0.07 | ) | $ | 0.15 |   |
| Diluted—as reported                                              |       | $                                               | (0.21      | )                                             | $          | 0.04 |   | $ | (0.07 | ) | $ | 0.13 |   |

 

**8.Commitments and Contingencies**

 

**Leases**

 

InsWeb is contractuallyobligated to make future lease payments on certain formerly occupied facilitiesthrough September 2008. As of June 30, 2008, total future obligationsfor these facilities amounted to $0.6 million; these obligations are offset bytotal contractual future sublease income of approximately $0.5 million. Inconnection with its lease obligations for formerly occupied facilities, InsWebmust make assumptions regarding the potential future sublease income relativeto these facilities. These estimates and assumptions are affected byarea-specific conditions such as new commercial development, market occupancyrates and future market prices. Based on these assumptions, InsWeb maintains anaccrual for formerly occupied facilities of $0.1 million at June 30, 2008.

 

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**I****NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

**8. Commitmentsand Contingencies****(continued)**

 

**SecuritiesClass Action**

 

A securities class actionlawsuit was filed on December 5, 2001 in the United States District Courtfor the Southern District of New York, (the “Court”) purportedly on behalf ofall persons who purchased our common stock from July 22, 1999 through December 6,2000. The complaint named as defendants InsWeb, certain current and formerofficers and directors, and three investment banking firms that served asunderwriters for InsWeb’s initial public offering in July 1999. Thecomplaint, as subsequently amended, alleges violations of Sections 11 and 15 ofthe Securities Act of 1933 and Sections 10 and 20 of the Securities ExchangeAct of 1934, on the grounds that the prospectuses incorporated in theregistration statements for the offering failed to disclose, among otherthings, that (i) the underwriters had solicited and received excessive andundisclosed commissions from certain investors in exchange for which theunderwriters allocated to those investors material portions of the shares ofour stock sold in the offerings and (ii) the underwriters had entered intoagreements with customers whereby the underwriters agreed to allocated sharesof the stock sold in the offering to those customers in exchange for which thecustomers agreed to purchase additional shares of InsWeb stock in theaftermarket at pre-determined prices. No specific damages are claimed. Similarallegations have been made in lawsuits relating to more than 300 other initialpublic offerings conducted in 1999 and 2000, all of which have beenconsolidated for pretrial purposes. In October 2002, all claims againstthe individual defendants were dismissed without prejudice. In February 2003,the Court dismissed the claims in the InsWeb action alleging violations of theSecurities Exchange Act of 1934 but allowed the plaintiffs to proceed with theremaining claims. In June 2003, the plaintiffs in all of the casespresented a settlement proposal to all of the issuer defendants. Under the proposedsettlement, the plaintiffs would dismiss and release all claims againstparticipating defendants in exchange for a contingent payment guaranty by theinsurance companies collectively responsible for insuring the issuers in allthe related cases, and the assignment or surrender to the plaintiffs of certainclaims the issuer defendants may have against the underwriters. InsWeb and mostof the other issuer defendants have accepted the settlement proposal. While theDistrict Court was considering final approval of the settlement, the SecondCircuit Court of Appeals vacated the class certification of plaintiffs’ claimsagainst the underwriters in six cases designated as focus or test cases. On December 14,2006, the District Court ordered a stay of all proceedings in all of thelawsuits pending the outcome of plaintiffs’ petition to the Second Circuit forrehearing en banc and resolution of the class certification issue. On April 6,2007, the Second Circuit denied plaintiffs’ petition for rehearing, but clarifiedthat the plaintiffs may seek to certify a more limited class in the DistrictCourt. Because of the significant technical barriers presented by the Court’sdecision, the parties withdrew the proposed settlement and the plaintiffs filedan amended complaint. Following the District Court’s denial of the defendants’motions to dismiss the amended complaint, the parties filed briefs on plaintiff’srenewed motion for class certification. There is no assurance that a newsettlement will be negotiated, and then approved. If the settlement is notnegotiated and subsequently approved, InsWeb intends to defend the lawsuitvigorously. The litigation and settlement process is inherently uncertain andmanagement cannot predict the outcome, though, if unfavorable, it could have amaterial adverse effect on InsWeb’s financial condition, results of operationsand cash flows.

 

**Section 16(b) Lawsuit**

 

On October 12, 2007,Vanessa Simmonds, a purported stockholder of InsWeb, filed a complaint in theUnited States District Court for the Western District of Washington, againstInsWeb and two investment banking firms that served as underwriters for theinitial public offering of our common stock in July 1999. The complaintalleges that:  (i) the defendants, other underwriters of theoffering, and unspecified officers, directors and principal stockholders ofInsWeb constituted a “group” that owned in excess of 10% of InsWeb’soutstanding common stock between July 23, 1999 and July 20, 2000; (ii) thedefendants were therefore subject to the “short swing” prohibitions of Section 16(b) ofthe Securities Exchange Actgroup of 1934; and (iii) the defendants engagedin purchases and sales, or sales and purchases, of the Company’s common stockwithin periods of less than six months in violation of the provisions of Section 16(b).The complaint seeks disgorgement of all profits allegedly received by thedefendants, with interest and attorneys fees, for transactions in violation of Section 16(b).InsWeb, as the statutory beneficiary of any potential Section 16(b) recovery,is named as a nominal defendant in the complaint. A number of similar lawsuitsagainst underwriters of other public offerings have recently been filed by thesame plaintiff and law firm. On February 11, 2008, the court approved astipulated order that InsWeb need not answer or otherwise respond to thecomplaint. On February 28, 2008, the plaintiff filed an amended complaint,and InsWeb has again been excused from filing an answer. Consolidated motionsto dismiss are expected to be filed on behalf of the issuer and underwriterdefendants. InsWeb intends to defend the lawsuit vigorously. The litigation andsettlement process is inherently uncertain and management cannot predict theoutcome, though, if unfavorable, it could have a material adverse effect onInsWeb’s financial condition, results of operations and cash flows.

 

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**I****NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

**8.Commitments and Contingencies****(continued)**

 

**PatentLitigation**

 

On November 30,2007, Autobytel, Inc.filed a complaint in the United States District Courtfor the Eastern District of Texas against InsWeb and three other defendants.The complaint alleges that InsWeb and the other defendants infringed U.S.Patent No. 6,282,517 (the “‘517 patent”), which appears to disclose amethod and apparatus to allow a potential automobile purchaser to create andsubmit a purchase request for a new or used automobile over a computer network.The complaint contains generic allegations that InsWeb infringed the ‘517patent by making, using, offering to sell and selling systems and/or methodsthat embody the invention claimed in the ‘517 patent and/or actively inducingand/or contributing to others’ infringement of such inventions. The complaintseeks unspecified monetary damages and injunctive relief. On February 25,2008, InsWeb filed an answer and counterclaim denying infringement of the ‘517patent and asserting invalidity of the patent and other affirmative defenses.

 

On March 11, 2008,InsWeb filed a complaint in the United States District Court for the SouthernDistrict of California against Autobytel, Inc., Autobytel I Corporation(formerly known as AVV, Inc.) and Dominion Enterprises. InsWeb filed anamended complaint on July 3, 2008 adding OneCommand, Inc. as adefendant.The amended complaint alleges that the defendants have infringedInsWeb’s U.S. Patent No. 6,898,597, which relates to an event loggingsystem that monitors for the occurrence of predefined website usage events.Defendant Autobytel, through its wholly-owned subsidiary AVV, marketed and solda product known as WebControl that embodies the invention claimed in the ‘597patent. In January 2008, Autobytel sold AVV, including the WebControlproduct, to Dominion Enterprises. Autobytel also owned an asset named RetentionPerformance Marketing (RPM) that embodied the invention claimed in InsWeb’spatent. Autobytel sold the RPM asset to OneCommand in July 2007. Theamended complaint also adds Internet Brands, Inc., Leadpoint, Inc.,and Auto Internet Marketing, Inc. as co-plaintiffs with InsWeb followingInsWeb’s assignment of a partial interest in the ‘597 Patent to thesecompanies. InsWeb and its co-plaintiff are seeking monetary damages in anamount to be determined at trial from each defendant and a permanent injunctionagainst further acts of infringement.

 

InsWeb intends tovigorously defend the Texas lawsuit and prosecute the California action. Thelitigation and settlement process is inherently uncertain and management cannotpredict the outcome, though, if unfavorable, it could have a material adverseeffect on InsWeb’s financial condition, results of operations and cash flows.

 

**9.Subsequent Event**

 

On July 21, 2008,InsWeb and NetQuote, Inc. entered into an Amendment to the ServicesAgreement (the “Amendment”) executed in July 2007. The Amendment extendsthe term of the Services Agreement through October 2009. The Amendmentalso expands the products covered by the Agreement. In addition to automobileand homeowners insurance leads, InsWeb and NetQuote will now send term lifeinsurance leads to the other party in exchange for a share of the revenue therecipient collects from distributing the lead to its network of agents andinsurance providers.

 

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**ITEM 2.**** ****MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*This Quarterly Report on Form 10-Q, and in particularManagement’s Discussion and Analysis of Financial Condition and Results ofOperations, contains “forward-looking statements” with respect to InsWeb’sfuture financial performance. The words or phrases “expects,” “anticipates,” “intends,”“plans,” “believes,” “seeks,” “estimates,” and similar expressions aregenerally intended to identify forward-looking statements. Such forward-lookingstatements are subject to various known and unknown risks and uncertainties,and InsWeb cautions you that any forward-looking information provided by, or onbehalf of, InsWeb is not a guarantee of future performance. Actual resultscould differ materially from those anticipated in such forward-lookingstatements due to a number of factors, some of which are beyond InsWeb’scontrol, including, but not limited to, uncertain economic conditions whichcould result in lower growth rates, fluctuations in revenues, anticipated andunanticipated losses, the unpredictability of consumer shopping and/or buyingbehavior, especially on the internet, potential increases in advertising andmarketing costs on the internet, the rate of participation by insurancecompanies and agents, reliance on key customers, who are themselves subject tovolatility in their operating cycles, reliance on a third party intermediarywho provides leads to local insurance agents on InsWeb’s behalf,competition,risks associated with system development and operation risks,management of potential growth and risks of new business areas, businesscombinations, litigation in which InsWeb is a party, and strategic alliances.These risks and uncertainties, as well as other risks and uncertainties, whichare described in greater detail in InsWeb’s Annual Report on Form 10-K forthe year ended December 31, 2007 and other documents filed with theSecurities and Exchange Commission, could cause InsWeb’s actual results todiffer materially from historical results or those currently anticipated. Allforward-looking statements are based on information available to InsWeb on thedate hereof, and InsWeb assumes no obligation to update such statements.*

 

**Overview**

 

InsWeb (the “Company,” “InsWeb,” “we,” “us,” or “our”) operates an online insurance marketplacethat enables consumers to comparison shop online and to obtain insurancecompany-sponsored quotes for a variety of insurance products, includingautomobile, homeowners and term life. InsWeb’s marketplace electronicallymatches consumers and insurance providers. InsWeb has combined extensiveknowledge of the insurance industry, technological expertise and closerelationships with a significant number of insurance companies, agents andinsurance providers to develop an integrated online marketplace.

 

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

 

For term life insurance,the majority of our revenues prior to April 2007 consisted of commissionsearned by our insurance agency subsidiary, InsWeb Insurance Services, Inc.,upon the sale of a term life insurance policy. We discontinued the term lifeagency operation in April 2007 but continued to earn commissionsthroughout 2007 (in decreasing amounts) with the winding-down of the term lifeagency in April 2007. Beginning in 2008, substantially all of our futurerevenues from the term life insurance product are being generated by the saleof leads to third parties.

 

Beginningin 2008, InsWeb also generates both subscription and display advertising fromsales of advertising on its Agent Directory pages. These pages display listingsof several insurance companies and not more than eight local agents for theconsumer to contact.

 

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

 

We have focused ourefforts on automobile insurance, which accounted for approximately 84% of ourtransaction revenues in 2007, and 76% in 2006. For the six month period ending June 30,2008, automobile insurance accounted for 85% of our transaction revenues. Weanticipate that automobile insurance will continue to account for a substantialportion of our revenues for the foreseeable future.

 

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**Results of Operations**

 

Financialhighlights and key metrics are as follows:

 
| ** **                                       | ** ** | **Three months Ended** | ** ** | **Six months Ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                       | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                       | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues (in thousands):                         |       |                             |       |                           |       |   |   |   |   |
| Auto                                             |       | $                                | 7,266      |                           | $          | 6,566 |   | $ | 18,462 |   | $ | 12,977 |   |
| Home/Condo/Renters                               |       | 1,015                            |       | 373                            |       | 1,947 |   | 777 |   |
| Term Life                                        |       | 360                              |       | 1,107                          |       | 845 |   | 2,322 |   |
| Agent Directory                                  |       | 105                              |       | —                         |       | 456 |   | — |   |
| Other                                            |       | 5                                |       | 17                             |       | 12 |   | 30 |   |
| Total transaction fees                           |       | $                                | 8,751      |                           | $          | 8,063 |   | $ | 21,722 |   | $ | 16,106 |   |
| # of Consumers:                                  |       |                             |       |                           |       |   |   |   |   |
| Auto                                             |       | 2,033                            |       | 1,448                          |       | 4,895 |   | 2,766 |   |
| Home/Condo/Renters                               |       | 211                              |       | 70                             |       | 395 |   | 147 |   |
| Term Life                                        |       | 16                               |       | 14                             |       | 25 |   | 74 |   |
| Agent Directory                                  |       | 478                              |       | N/M                            |       | 1,197 |   | N/M |   |
| Total                                            |       | 2,738                            |       | 1,532                          |       | 6,512 |   | 2,987 |   |
| Transaction Revenue per Consumer:                |       |                             |       |                           |       |   |   |   |   |
| Auto                                             |       | $                                | 3.57       |                           | $          | 4.53 |   | $ | 3.77 |   | $ | 4.69 |   |
| Home/Condo/Renters                               |       | $                                | 4.81       |                           | $          | 5.33 |   | $ | 4.93 |   | $ | 5.50 |   |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Auto Segment B Revenue per Click:                |       | $                                | 6.26       |                           | $          | 6.24 |   | $ | 6.53 |   | $ | 5.97 |   |
| Avg. Times Lead Sold (Auto and Home):            |       | 3.7                              |       | N/M                            |       | 3.7 |   | N/M |   |
| Agent Network (Auto and Home):                   |       |                             |       |                           |       |   |   |   |   |
| AgentInsider Approved Agents                     |       | 6,402                            |       | 4,742                          |       | 6,402 |   | 4,742 |   |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Direct Marketing Costs (in thousands):           |       | $                                | 6,238      |                           | $          | 4,597 |   | $ | 15,543 |   | $ | 9,125 |   |
| Marketing Costs per Consumer:                    |       |                             |       |                           |       |   |   |   |   |
| Total                                            |       | $                                | 2.28       |                           | $          | 3.00 |   | $ | 2.39 |   | $ | 3.06 |   |
| Excluding Agent Directory                        |       | $                                | 2.71       |                           | $          | 3.00 |   | $ | 2.82 |   | $ | 3.06 |   |
| Direct Marketing Costs as a Percent of Revenues: |       | 71                               | %          | 57                             | %          | 71 | % | 56 | % |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Cash and Cash Equivalents (in thousands):        |       | $                                | 10,674     |                           | $          | 8,293 |   | $ | 10,674 |   | $ | 8,293 |   |
| Account Receivable (in thousands):               |       | $                                | 2,360      |                           | $          | 3,658 |   | $ | 2,360 |   | $ | 3,658 |   |
| Day Sales Outstanding (DSO):                     |       | 31                               |       | 40                             |       | 31 |   | 40 |   |
| Staffing:                                        |       | 84                               |       | 64                             |       | 84 |   | 64 |   |

 

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| Definitions:                              |   |                                                                                                                                      |
|-------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
|                                      |   |                                                                                                                                      |
| “# of Consumers”                |   | Represents consumers  acquired from marketing activities                                                                                  |
|                                      |   |                                                                                                                                      |
| “Per Consumer Information”      |   | Represents revenues earned  or marketing costs incurred per consumer who has started an InsWeb quote form                                 |
|                                      |   |                                                                                                                                      |
| “Segment B”                     |   | Auto Insurance consumers  classified as non-standard (bad driving record, not enough experience, or not  permanently insured for 3 years) |
|                                      |   |                                                                                                                                      |
| “Avg. Times Lead Sold                |   | Total # of times a lead is  sold, including leads sold by NetQuote on our behalf                                                          |
|                                      |   |                                                                                                                                      |
| “AgentInsider Approved  Agents” |   | # of agents approved to buy  leads through AgentInsider                                                                                   |
|                                      |   |                                                                                                                                      |
| “Direct Marketing Costs”        |   | Represents expenses  incurred by InsWeb to acquire the consumers to InsWeb’s online insurance  marketplace                           |
|                                      |   |                                                                                                                                      |
| *N/M                                      |   | Information not meaningful                                                                                                                |

 

***Transaction Fees.***Automobileinsurance transaction fees (consisting of lead fees and click through fees)increased to $7.3 million and $18.5 million for the three and six months ended June 30,2008, from $6.6 million and $12.9 million for the comparable periods in 2007. The increases in transaction fees were attributable to improvementsto our lead generation program and a 40% and 77% increase in traffic from thecomparable periods in 2007. With the significant increase in traffic, our agentnetwork’s ability to absorb the traffic decreased, and as a result, our revenueper consumer decreased to $3.57 and $3.77 for the three and six months ended June 30,2008, from $4.53 and $4.69 forthe comparable periods in 2007.

 

Homeowners,condominium and renters transaction fees (consisting primarily of lead fees)were $1.0 million and $1.9 million for the three and six months ended June 30,2008, as compared to $0.4 million and $0.8 million for the comparable periods in 2007. We expect revenue from the property insurance marketplace to increaseduring the remainder of 2008.

 

Termlife insurance transaction fees (consisting primarily of lead fees) decreasedto $0.4 million and 0.8 million for the three and six months ended June 30,2008, from $1.1 million and $2.3 million for the comparable periods in 2007. The decrease in term life revenues isattributable to the absence of commission based revenue following our decisionin April 2007 to wind-down our term life agency in order to focuson lead generation opportunities. Beginning in 2008, term life insuranceproducts are being offered to our consumers only through our online insurancemarketplace using a lead generation model.

 

Agentdirectory fees (consisting of both advertising revenues as well as subscriptionrevenues) were $0.1 million and $0.5 million for the three and six monthsended June 30, 2008, as compared to $0 for the comparable periods in 2007.

 

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**Operating Expenses**

 
| ** **                                                    | ** ** | **Three months ended  June 30,** | ** ** | **Percentage  change from** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------------------|------------|----------------------------------|------------|
| **(in thousands,**** except percentages****)** | ** ** | **2008**                                        | ** ** | **2007**                         | ** ** | **prior period** | ** ** |
|                                                          |       |                                            |       |                             |       |   |   |
| Operating expenses:                                           |       |                                            |       |                             |       |   |   |
| Direct marketing                                              |       | $                                               | 6,238      |                             | $          | 4,597 |   | 36 | % |
| Sales and marketing                                           |       | 1,433                                           |       | 1,327                            |       | 8 |   |
| Technology                                                    |       | 811                                             |       | 777                              |       | 4 |   |
| General and administrative                                    |       | 1,373                                           |       | 1,323                            |       | 4 |   |
|                                                               |            |                                                 |            |                                  |            |  |  |  |  |

 
| ** **                                                    | ** ** | **Six months ended  June 30,** | ** ** | **Percentage  change from** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------|------------|
| **(in thousands,**** except percentages****)** | ** ** | **2008**                                      | ** ** | **2007**                         | ** ** | **prior period** | ** ** |
|                                                          |       |                                          |       |                             |       |   |   |
| Operating expenses:                                           |       |                                          |       |                             |       |   |   |
| Direct marketing                                              |       | $                                             | 15,543     |                             | $          | 9,125 |   | 70 | % |
| Sales and marketing                                           |       | 2,728                                         |       | 2,805                            |       | (3 | ) |
| Technology                                                    |       | 1,627                                         |       | 1,653                            |       | (2 | ) |
| General and administrative                                    |       | 2,399                                         |       | 2,225                            |       | 8 |   |
|                                                               |            |                                               |            |                                  |            |  |  |  |  |

 

***Direct Marketing.*** Direct marketing expenses consist ofadvertising, promotions and fees incurred to acquire consumer traffic to theInsWeb online marketplace. Our marketing strategy is designed toincrease consumer traffic to our website and to drive awareness of ourinsurance products and services. We employ various means of advertising, whichconsist primarily of online advertising, sponsored search, portal advertising,e-mail campaigns and strategic partnerships with high-profile online companiesthat can acquire significant traffic to the InsWeb site or the sites of otheronline lead generators that use our network. Fees related to our onlinemarketing are expensed in the period in which the consumer clicks through froma partner’s website to InsWeb’s website, or in some cases, when the consumer’sactivity on the InsWeb website generates a lead to an insurance provider. Direct marketing expenses for the three andsix months ending June 30, 2008 increased to $6.2 million and $15.5million from $4.6 million and $9.1 million in the comparable periods in 2007.Direct marketing expense as a percent of total revenues was 71% for the threeand six months ended June 30, 2008, compared to 57% and 56% for the comparable periods in 2007, which wereaided in part, by revenues from the winding down of the term-life agency, withno associated marketing costs.Direct marketing expenses per consumer were $2.28 and $2.39 for the three andsix months ended June 30, 2008, a decrease from $3.00 and $3.06 for thecomparable periods in 2007. Directmarketing expenses for the remainder of 2008 are expected to increase, due toan increase in marketing efforts.

 

***Sales and Marketing.*** Sales and marketing expenses consistprimarily of payroll and related expenses, including employee benefits,facility costs, telecommunications and systems costs, for our sales andmarketing personnel. Sales and marketing expenses increased to $1.4 million forthe three months ended June 30, 2008, from $1.3 million for the comparable period in 2007 and decreased to$2.7 million for the six months ended June 30, 2008, from $2.8 million forthe comparable period in 2007.The decrease for the six months ended June 30, 2008 was primarily due tothe winding-down of our term life agency in April 2007. Sales and marketing expenses for theremainder of 2008 are expected to increase, due to an increase in headcountrelated expenses.

 

***Technology.*** Technology expenses consist primarily ofpayroll and related expenses, including employee benefits, facility and systemscosts, for product and site development personnel involved with our technologyinitiatives. Technology expenses remained level at $0.8 million for the threemonths ended June 30, 2008 and the comparable period in 2007 and decreasedto $1.6 million for the six months ended June 30, 2008 from $1.7 millionfor the comparable period in2007. Technology expenses for the remainder of2008 are expected to increase, due to an increase in headcount relatedexpenses.

 

***General and Administrative.*** General and administrative expenses consistprimarily of payroll and related expenses, including employee benefits,facility costs, telecommunications and systems costs, for our generalmanagement, administrative and accounting personnel, as well as other generalcorporate expenses. General and administrative expenses were $1.4 million and$2.4 million for the three and six months ended June 30, 2008, compared to$1.3 million and $2.2 million for thecomparable periods in 2007.General and administrative expenses increased for the three and six monthsended June 30, 2008 due to legal costs associated with patent litigation,offset by a decrease in share-based compensation expense.

 

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**Interestand Other Income**

 

***Interest Income***.Interest income was $60,000 and $149,000 for the three and six months ended June 30,2008, a decrease from $107,000 and $179,000 for the comparable periods in 2007.Interest income represents interest earned on InsWeb’s investment securities.

 

***Other Income***. Other income was $0 for the three and sixmonths ended June 30, 2008, compared to $2,000 and $6,000 for thecomparable periods in 2007.

 

**Provision (Benefit) for Income Taxes**

 

Abenefit of $9,000 was recognized for the three months ended June 30, 2008.No benefits were recognized for the comparable period in 2007, nor for the sixmonths ended June 30, 2007 and June 30, 2008.

 

**Critical Accounting Policies**

 

InsWeb’s discussion and analysis of its financial condition and resultsof operations are based on InsWeb’s consolidated financial statements whichhave been prepared in accordance with accounting principles generally acceptedin the United States. The preparation of these financial statements requiresInsWeb to make estimates and judgments that affect the reported amounts ofassets and liabilities and the disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. InsWeb bases its estimates andjudgments on historical experience and on various other factors that arebelieved to be reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions.InsWeb believes the following critical accounting policies affect its moresignificant judgments and estimates used in the preparation of its consolidatedfinancial statements.

 

**Contingencies.** As discussed in Part I, Item 3 (“LegalProceedings”) of this report, InsWeb is a defendant in: i) a class actionlawsuit has been filed that alleges InsWeb violated certain federal securitieslaws at the time of its initial public offering; ii) a securities lawsuitalleging certain officers and directors and significant shareholders violatedthe short swing trading prohibition of Section 16(b) of theSecurities Exchange Act; and iii) a patent infringement lawsuit in the Easterndistrict of Texas. InsWeb is a plaintiff in a patent infringement lawsuit inthe Southern District of California. InsWeb cannot accurately predict theultimate outcome of these matters at this time and therefore, cannot estimatethe range of probable loss, if any, due to the inherent uncertainties oflitigation. InsWeb believes it has meritorious defenses; however InsWeb cannotassure that it will prevail in any of these actions. An unfavorable outcomecould have a material adverse effect on InsWeb’s financial condition, resultsof operations and cash flows.

 

**Share-Based Compensation.**InsWeb accounts for share-based compensationin accordance with Statement of Financial Accounting Standards No. 123(R),*Share-Based Payment*(“Statement 123(R)”). Under theprovisions of Statement 123(R), share-based compensation cost is generallyestimated at the grant date based on the award’s fair value as calculated bythe Black-Scholes-Merton (BSM) option-pricing model and is recognized asexpense over the requisite service period. The BSM model requires varioushighly judgmental assumptions including expected option life, volatility, andforfeiture rates. If any of the assumptions used in the BSM model changesignificantly, share-based compensation expense may differ materially in thefuture from that recorded in the current period.

 

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**IncomeTaxes.**InsWebaccounts for income taxes in accordance with Statement of Financial AccountingStandards No. 109, *Accounting forIncome Taxes*. The deferred tax assets and/or liabilities aredetermined by multiplying the differences between the financial reporting andtax reporting bases for assets and liabilities by the enacted tax ratesexpected to be in effect when such differences are recovered or settled.

 

The carrying value of our deferred taxassets, which was approximately $73 million at December 31, 2007, isdependent upon our ability to generate sufficient future taxable income. Wehave established a full valuation allowance against our net deferred tax assetsto reflect the uncertainty of realizing the deferred tax benefits, givenhistorical losses. A valuation allowance is required when it is more likelythan not that all or a portion of a deferred tax asset will not be realized.This assessment requires a review and consideration of all available positiveand negative evidence, including our past and future performance, the marketenvironment in which we operate, the utilization of tax attributes in the past,and the length of carry-forward periods and evaluation of potential taxplanning strategies. We expect to continue to maintain a full valuationallowance until an appropriate level of profitability is sustained or we areable to develop tax strategies that would enable us to conclude that it is morelikely than not that a portion of our deferred tax assets would be realizable.

 

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**Liquidity and Capital Resources**

 

Summarized cash flow information is as follows (in thousands):

 
| ** **                                       | ** ** | **Six months ended  June 30,** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                      | ** ** | **2007** | ** ** |
| Cash provided by operating activities            |       | $                                             | 705        |   | $ | 495 |   |
| Cash used in investing activities                |       | (305                                          | )          | (6 | ) |
| Cash provided by (used in) financing  activities |       | (503                                          | )          | 1,054 |   |
|                                                  |            |                                               |            |  |  |  |  |

 

At June 30, 2008, InsWeb’sprincipal source of liquidity was $10.7 million in cash and cashequivalents. Since inception, we have financed our operations primarily throughthe sale of preferred and common stock.

 

For the six months ended June 30, 2008, net cashprovided by operating activities was $0.7 million, primarily due to our netloss of $0.3 million as adjusted for non-cash share-based compensation of $0.4million, depreciation and amortization of property, equipment and intangibleassets of $74,000, a decrease in accounts receivable of $69,000, a decrease inprepaid expenses of $126,000, an increase in accounts payable of $170,000, andan increase in accrued expenses of $168,000. For the comparable six month period ended June 30, 2007, netcash provided by operating activities primarily consisted of our net income,increased by non-cash share-based compensation of $0.6 million and depreciationand amortization of property and equipment of $84,000. An increase in accountsreceivable of $0.9 million decreased cash provided by operations, while anincrease in accounts payable of $94,000 increased cash provided by operations. The increase in accounts receivable was aresult of the revenue growth during the year.

 

For the six months ended June 30, 2008 and 2007, net cash used in investing activities was$305,000 and $6,000, respectively, representing purchases of property,equipment and intangible assets.

 

For the six months ended June 30, 2008, net cash used by financing activities was$0.5 million, consisting of $0.9 million used for a cash settlement of equityawards in connection with the departure of the president and COO in June, 2008,offset by proceeds from exercise of stock options and stock issued from ouremployee stock purchase plan of $0.4 million.

 

We lease office facilities under non-cancelable operating leases, whichexpire at various dates through April 2011, including a 10-year leaseagreement through 2011 for office space in the Sacramento area which currentlyhouses our corporate headquarters. We have options to extend the lease at theend of the lease term, and have the right of first refusal on other officespace in the complex. In addition, we have entered into various sublease arrangementsassociated with previously exited facilities that have terms extending through September 2008.

 

Aggregatecontractual cash obligations, net of contractual sublease income, as of June 30,2008 is summarized as follows (in thousands):

 
| **Periods ending December 31,** | ** ** | **Gross lease  commitments** | ** ** | **Sublease  income** | ** ** | **Net lease  commitment** | ** ** |
|------------------------------------------------|------------|-----------------------------------|------------|----------------------|------------|--------------------------------|------------|
| Six months ending December 31, 2008       |       | $                                 | 1,163      |                 | $          | (632                           | )          | $ | 531 |   |
| Year ending December 31, 2009             |       | 1,078                             |       | (191                 | )          | 887                            |       |
| Year ending December 31, 2010             |       | 1,078                             |       | (197                 | )          | 881                            |       |
| Year ending December 31, 2011             |       | 359                               |       | (33                  | )          | 326                            |       |
| Year ending December 31, 2012             |       | —                            |       | —               |       | —                         |       |
|                                           |       | $                                 | 3,678      |                 | $          | (1,053                         | )          | $ | 2,625 |   |

 

We currently anticipate that our cash andcash equivalents will be sufficient to meet our anticipated cash needs forworking capital and capital expenditures for at least the next 12 months.Although we do not anticipate the need for additional financing, wenevertheless may require additional funds to meet operating needs, or to expandour business internally or through acquisition. We cannot be certain thatadditional financing will be available when required, on favorable terms or atall. If we are not successful in raising additional capital as required, ourbusiness could be materially harmed. If additional funds were raised throughthe issuance of equity securities, the percentage ownership of our then-currentstockholders would be reduced.

 

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**ITEM3.****                                                     QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.**

 

Therehave been no material changes to our disclosures related to certain marketrisks as reported under Part II, Item 7A, “Quantitative and QualitativeDisclosures About Market Risk,” in our Annual Report on Form 10-K for theyear ended December 31, 2007, as filed with the U.S. Securities andExchange Commission.

 

**ITEM4T.****                                             CONTROLSAND PROCEDURES**

 

(a)                                            Under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer, we evaluated the effectiveness of our disclosurecontrols and procedures, as such term is defined under Rule 13a-15(e) promulgatedunder the Securities Exchange Act of 1934, as amended. Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures were effective as of the end of theperiod covered by this quarterly report.

 

(b)                                           There has been no change in our internalcontrol over financial reporting during the three months ended June 30,2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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

 

**ITEM 1.****    ****LEGAL PROCEEDINGS**

 

SeePart I, Item 1, “Financial Statements — Note 8 — Commitments andContingencies.”

 

**ITEM1A.****                                            RISKFACTORS.**

 

Ourfuture business, operating results and financial condition are subject tovarious risks and uncertainties, including those disclosed in Part I, Item1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31,2007, as filed with the U.S. Securities and Exchange Commission. There havebeen no material changes to the risk factors as so disclosed.

 

**ITEM 6.****    ****EXHIBITS**

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

 

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### **SIGNATURE**

###  

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

 

 
| Dated: August 4, 2008 | **INSWEB  CORPORATION**  |
|----------------------------|--------------------------|
| ** **                 | **(Registrant)**         |
|                       |                     |
| ** **                 | **/s/ STEVEN J. YASUDA** |
|                       | Steven J. Yasuda         |
|                       | Chief Accounting Officer |

 

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