**UNITED STATES**

**SECURITIES ANDEXCHANGE COMMISSION**

**Washington, DC. 20549**

 

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**FORM 10-K**

 

**(Mark One)**

 
|   | x      | ** ** | **Annual report pursuant to  Section 13 or 15(d) of the Securities Exchange****Act of 1934**     |
|--------|--------|------------|------------------------------------------------------------------------------------------------------------|
|   |   |       | ** **                                                                                                 |
|   |   |       | **for the fiscal year ended  December 31, 2007**                                                      |
|   |   |       | ** **                                                                                                 |
|   |   |       | **or**                                                                                                     |
|   |   |       | ** **                                                                                                 |
|   | o      | ** ** | **Transition report pursuant to  Section 13 or 15(d) of the Securities Exchange****Act of 1934** |
|   |   | ** ** | ** **                                                                                                 |
|   |   | ** ** | **for the transition period from to**                                                                      |

 

**Commission File Number 0-26083**

 

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**INSWEB CORPORATION**

(Exactname of registrant as specified in its charter)

 

| **DELAWARE**

(State or other jurisdiction ofIncorporation or organization) | ** ** | **94-3220749**

(I.R.S. EmployerIdentification No.) |
|-----------------------------------------------------------------------------|------------|-----------------------------------------------------|

 

**11290 Pyrites Way, Gold River, California 95670**

(Addressof principal executive offices)

 

**(916) 853-3300**

(Registrant’stelephone number, including area code)

 

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Securities registered pursuantto Section 12(b) of the Act:

** **

| **Title of each class** | ** ** | **Name of Exchange on which registered** |
|-------------------------|------------|------------------------------------------|
| None                    |       | None                                     |

 

Securities registered pursuantto Section 12(g) of the Act:

** **

**Common Stock, $0.001 par value**

(Titleof Class)

 

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Indicateby check mark whether the registrant is a well-known seasoned issuer, asdefined in Rule 405 of the Securities Act. YES o NO x

 

Indicateby check mark whether the registrant is not required to file reports pursuantto Section 13 or 15(d) of the Exchange Act. YES o NO x

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 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 if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. x

 

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

 

Large Accelerated Filer o                                                   Accelerated Filer  o

 

Non-Accelerated Filer o                                                         Smaller Reporting Company  x

 

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

YES o  NO x

 

The aggregate marketvalue of registrant’s voting and non-voting common equity held bynon-affiliates of registrant, based upon the closing sale price of the commonstock as of the last business day of registrant’s most recently completedsecond fiscal quarter (June 29, 2007), as reported on the Nasdaq GlobalMarket, was approximately $16,337,000.Registrant is a smaller reporting company as defined in Regulation S-K. Sharesof common stock held by each officer, director and holder of 5% or more of theoutstanding common stock have been excluded in that such persons may be deemedto be affiliates. This determination of affiliate status is not necessarily aconclusive determination for other purposes.

 

Outstandingshares of registrant’s common stock, $0.001 par value, as of March 2,2008: 4,680,717

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

Parts of the definitiveProxy Statement for registrant’s 2008 Annual Meeting of Stockholders to befiled with the Commission pursuant to Regulation 14A not later than120 days after the end of the fiscal year covered by this Report areincorporated by reference into Part III of this Form 10-K Report.

 

** **

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**INSWEB CORPORATION**

 

**Annual Report on Form 10-K**

**Forthe Fiscal Year Ended December 31, 2007**

 

**Table ofContents**

 
| **PART I**    |
|--------------------|
|               |   |   |   |
| Item 1.            |   | Business | 2 |
| Item 1A.           |   | Risk Factors | 10 |
| Item 1B.           |   | Unresolved  Staff Comments | 15 |
| Item 2.            |   | Properties | 15 |
| Item 3.            |   | Legal Proceedings | 16 |
| Item 4.            |   | Submission  of Matters to a Vote of Security Holders | 17 |
|               |   |   |   |
| **PART II**   |
|               |   |   |   |
| Item 5.            |   | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 18 |
| Item 6.            |   | Selected  Financial Data | 19 |
| Item 7.            |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 21 |
| Item 7A.           |   | Quantitative  and Qualitative Disclosures About Market Risk | 30 |
| Item 8.            |   | Financial  Statements and Supplementary Data | 30 |
| Item 9.            |   | Changes in  and Disagreements With Accountants on Accounting and Financial Disclosure | 31 |
| Item 9A(T).        |   | Controls and Procedures | 31 |
| Item 9B.           |   | Other Information | 31 |
|               |   |   |   |
| **PART III**  |
|               |   |   |   |
| Item 10.           |   | Directors,  Executive Officers and Corporate Governance | 32 |
| Item 11.           |   | Executive  Compensation | 32 |
| Item 12.           |   | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters | 32 |
| Item 13.           |   | Certain  Relationships and Related Transactions | 32 |
| Item 14.           |   | Principal  Accountant Fees and Services | 33 |
|               |   |   |   |
| **PART IV**   |
|               |   |   |   |
| Item 15.           |   | Exhibits and  Financial Statement Schedules | 33 |
|               |   |   |   |
| Signatures         |   |   | 34 |
| Exhibit Index |   | 35 |
| Schedule II        | – | Valuation and Qualifying Accounts | 36 |
|                    |  |  |  |  |  |

 

1

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**PART I**

 

*Unlessotherwise indicated or required by the context, as used in this Annual Reporton Form 10-K, the terms “we,” “our” and “us” refer to InsWeb Corporationand its subsidiaries that are consolidated in conformity with accountingprinciples generally accepted in the United States.*

 

*Certaininformation contained in this Annual Report on Form 10-K should beconsidered “forward-looking statements” as defined by Section 21E of thePrivate Securities Litigation Reform Act of 1995. All statements in this reportother than historical information may be deemed forward-looking statements.These statements present (without limitation) the expectations, beliefs, plansand objectives of management and future financial performance and assumptionsunderlying, or judgments concerning, the matters discussed in the statements.The words “believe,” “estimate,” “anticipate,” “project” and “expect,” andsimilar expressions, are intended to identify forward-looking statements.Forward-looking statements involve certain risks, estimates, assumptions anduncertainties, including**our ability to generate significant revenues from our corebusiness; our ability to maintain profitability; our reliance on automobileinsurance; our ability to expand our operations;; and our success in developingand maintaining cost efficient online relationships to attract consumers to ourwebsite.**A variety of factors could cause actual results or outcomesto differ materially from those expected and expressed in our forward-lookingstatements. Some important risk factors that could cause actual results oroutcomes to differ from those expressed in the forward-looking statements aredescribed in “Item 1ARisk Factors” of this report.*

 

*Thelist of factors that may affect future performance and the accuracy offorward-looking statements described in “Item 1A Risk Factors” of thisreport is illustrative, but by no means exhaustive. Additional risk factors maybe described from time to time in our future filings with theU.S. Securities and Exchange Commission. Accordingly, all forward-lookingstatements should be evaluated with the understanding of their inherentuncertainty. All such risk factors are difficult to predict, contain materialuncertainties that may affect actual results and may be beyond our control.*

 

**Item 1.Business.**

 

InsWeb was originallyincorporated in California in February 1995 and re-incorporated inDelaware in October 1996, and is headquartered outside Sacramento,California. InsWeb’s headquarters mailing address is 11290 Pyrites Way, GoldRiver CA, 95670, and the telephone number at that location is(916) 853-3300. The InsWeb website is *www.InsWeb.com.*

 

**The InsWebOnline Insurance Marketplace**

 

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 extensiveknowledge of the insurance industry, technological expertise and closerelationships with a number of insurance companies to develop an integratedonline marketplace. InsWeb’s marketplace enables consumers to researchinsurance-related topics, search for, analyze and compare insurance products,and apply for and receive quotes for coverage for automobile, homeowners andterm life insurance. Management believes that InsWeb provides insuranceproviders with pre-qualified consumers at attractive acquisition costs, withthe scalable, cost-efficient distribution capabilities of InsWeb’sInternet-based model.

 

InsWeb’s principal source of revenues is transaction fees fromparticipating insurance providers, either directly from an insurance company orfrom a local insurance agent. While quotes obtained through InsWeb’s onlineinsurance marketplace are provided to consumers free of charge, InsWeb earnsrevenues from participating insurance companies or agents based on the deliveryof qualified leads. In certain instances, consumers are provided theopportunity to link directly to a third-party insurance provider’s website (“SponsoredWeb Link” program). In these situations, the consumer will complete thethird-party company’s online application, and InsWeb will be paid a fee forthat consumer link or click-through.

 

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**The Quote Generation and PurchaseProcess**

 

For those consumers thatproceed with an InsWeb application, the quote generation and purchase processgenerally involves the following steps:

 

·                                          data entry by theconsumer;

 

·                                          underwriting andrating, the latter through InsWeb engines or through insurance providers’proprietary systems;

 

·                                          presentation ofquotes to the consumer, either instantly or on a delayed basis;

 

·                                          delivery of leads toparticipating insurance providers;

 

·                                          potentially,purchase of the insurance policy.

 

***Data Entry.*** To complete a shopping session, a consumer completes an online formthat requests information such as the consumer’s age, address and coveragerequirements, a process that InsWeb estimates takes approximately 10 minutes,depending on the type of insurance sought and the complexity of the consumer’sprofile. The quote form captures a comprehensive set of information designed toaddress basic underwriting and rating criteria. To assist consumers inevaluating and fulfilling their insurance needs, InsWeb provides consumers witha variety of interactive website features and insurance-related information. Inaddition, InsWeb provides online help and customer service throughout the dataentry process. The consumer completes only one online form for a particulartype of insurance, but may receive quotes from multiple participating companiesdepending on which companies have qualified that consumer. This information canalso be used to automatically complete portions of the quote form for otherinsurance products. Because the information insurance companies use tounderwrite, rate and provide quotes to a consumer is entered directly by the consumer,the insurance companies can reduce or eliminate the expense associated withcollecting consumer data. Moreover, information entered directly by consumerstypically contains fewer errors than information provided orally to an agent orinsurance company representative, who must then enter that information manuallyinto the insurance company’s system.

 

***Underwriting.***InsWeb’s software uses criteria set by each participating insurancecompany to analyze a consumer’s data and determine whether it fits within theinsurance provider’s targeted risk profile. Electronic underwriting eliminatesthe expense of screening and quoting risks that an insurance company ultimatelymay not want to accept. Additionally, InsWeb’s system can provide rapidfeedback to an insurance company regarding the impact that particular criteriaare having on the number of leads being directed to that company and alsopermits individual criteria to be easily added or removed.

 

***Presentation of Quotes.*** After a consumer has completed the form for a particular product, theconsumer is presented with a “quote pad.” The quote pad contains the logos ofinsurance providers (either a local agent or an insurance company) who areinterested in presenting a quote to the consumer. In some cases the ratescharged by the insurance companies will also be displayed. When rates are notdisplayed, the quote pad informs the consumer which insurance providers willpresent a quote on a delayed basis, either via e-mail or telephone. Theresponse method varies among insurance products and providers.

 

***Delivery of Leads.*** InsWeb earns revenues from participating insurance providers based onthe delivery of qualified leads. With auto insurance providers (including insurancecompanies, third-party local agent networks and InsWeb’s AgentInsider network,which provides leads directly to local personal lines insurance agents), InsWebis paid a transaction fee based on the delivery of a lead, whether or not theconsumer actually purchases a policy. For auto and home insurance coverage,qualified leads are produced when a consumer clicks to view insurance companyquotes. These leads are produced both for insurance companies providing instantonline quotes and for insurance companies and local insurance agents whoprovide email or other offline quotes.For term life insurance coverage, until April 2007,consumer leads were sent to InsWeb’s licensed subsidiary, InsWeb InsuranceServices, Inc., which earned a commission when a policy is sold.  Since April 2007, with the winding downof the term-life agency, leads are sent to third party providers of fulfillmentservices.

 

***Purchase of Policy.*** After InsWeb generates and delivers a qualified lead, insuranceproviders may respond directly to the interested consumer by e-mail or telephoneto close the purchase of the policy. The delivery of a qualified lead to theinsurance company or local agent does not require further involvement byInsWeb, although InsWeb monitors insurance company responses and works withcompanies and agents to ensure that they are responding to leads generated fromthe online insurance marketplace in a timely fashion.

 

3

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**Interactive Website Features andInformation**

 

To assist consumers inevaluating and fulfilling their insurance needs, InsWeb provides consumers witha variety of interactive website features and insurance-related information,including:

 

·                                          tools to help consumers estimate their coverage requirements for autoand term life insurance;

 

·                                          research capabilities to help consumers review the financial strength ofinsurance companies nationwide;

 

·                                          answers to frequently asked questions on insurance;

 

·                                          articles on a wide variety of insurance and personal finance topics; and

 

·                                          glossaries of insurance-related terms;

 

**InsuranceProducts**

 

Insurance companiesparticipating in InsWeb’s online insurance marketplace currently offerautomobile and homeowners insurance. In addition, InsWeb has contractualrelationships with third-party providers for term life, small business,renters, condominium insurance, home warranty, RV, motorcycle, critical illnessand health insurance.

 

***Automobile Insurance*****.**Automobile insurance comprises the largest segment of the consumerinsurance market, and, to date, has accounted for most of the consumer trafficon InsWeb’s online marketplace, and a majority of its revenues. At December 31,2007, InsWeb’s online marketplace offered quotes or web-sponsored links toconsumers in all 50 states, plus the District of Columbia.

 

***Homeowners’ Insurance*****.**At December 31, 2007, the InsWeb online marketplace offeredcomparative quotes for homeowners’ insurance from providers in all 50 states,plus the District of Columbia.

 

***Term life Insurance*****.**At December 31, 2007, InsWeb markets term life insurance on behalfof certain third party fulfillment providers in all 50 states, plus theDistrict of Columbia.  Consumers are sentdirectly to those third party sites.

 

***Other Products*****.**InsWeb’s online marketplace also allows consumers to shop for term life,small business, renters and condominium insurance, as well as home warranty,motorcycle and RV insurance, and health and critical illness insurance incertain states. At present, the InsWeb online marketplace does not enableconsumers to obtain multiple quotes with respect to these types of insurance;instead, consumers seeking quotes for these products are linked to a singleinsurance company or third party for each product in the states in which it isavailable.

 

**InsuranceCompany Relationships**

 

InsWebbelieves that establishing long-term relationships with reputable insurancecompanies is essential to its ability to offer a desirable insurance marketplaceon its website. InsWeb’s focus is to maintain and expand the product offeringsavailable on the online marketplace by selling InsWeb’s services to additionalcompanies and expanding InsWeb’s relationship with participating insurancecompanies and agencies. AtDecember 31, 2007, InsWeb had relationships with 29 insurance companiesfor automobile, homeowners and term life insurance, including many largecompanies with established brand names that InsWeb believes are attractive toconsumers.

 

For the year ended December 31, 2007, three customers (NetQuote,Allstate and AIG) accounted for 16%, 13% and 13% of total revenues,respectively.  For the year ended December 31,2006, two customers (NetQuote and AIG) accounted for 17% and 10% of totalrevenues. For the year ended December 31, 2005, one customer (NetQuote)accounted for 27% of total revenues.  At December 31,2007, two customers (AIG and NetQuote) each accounted for 17% of accountsreceivable.  At December 31, 2006,two customers (AIG and NetQuote) accounted for 18% and 12% of accountsreceivable, respectively.

 

**InsuranceAgent Network**

 

In 2004, InsWeblaunched its agent network program, which provides online auto and homeowners’insurance consumers direct access to insurance agencies. Prior to September 2005,direct consumer access to such agencies was possible only through anintermediary, NetQuote, Inc. During the years ended December 31,2007, 2006 and 2005, NetQuote, Inc. represented15%,19% and 29%of autotransaction fees, respectively. With the launchof InsWeb’s proprietary agent network offering (“AgentInsider”) in September 2005,the Company began selling leads directly to insurance agents. Throughthe AgentInsider platform, agents can bid for 

 

4

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participation inInsWeb’s marketplace of automobile and homeowners’ insurance consumers. Inaddition, InsWeb has entered into agreements with several large insurancecompanies to allow their agents to participate in AgentInsider without bidding.Whether the lead is obtained by the agent through bidding or participatingthrough a sponsoring insurance company, InsWeb is paid a fee for each consumerlead sent to an agent, regardless of whether or not a policy is sold to theapplicant. As of December 31, 2007,approximately 5,250 personal lines insurance agents were actively purchasingconsumer leads through AgentInsider, representing 22% of auto and homeowners’transaction fees. Separately, certain carriers purchase leads from InsWeb andredistribute them to their agents; at December 31, 2007, approximately2,400 such agents were indirectly accessible to consumers.

 

**Marketing andSales**

 

InsWeb’s marketingprogram consists of a two-pronged effort, with substantial resources directedboth at attracting increased consumer traffic to the InsWeb website, andbuilding and expanding relationships with participating insurance companies andwith local personal lines insurance agents. InsWeb believes that increasedtraffic will encourage insurance providers to develop and expand theirrelationship with InsWeb, and that enhancing the comparative shoppingopportunities available through increased insurance provider participation willdrive further increases in consumer traffic.

 

**Consumer Marketing**

 

InsWeb’s marketingstrategy is designed to cost effectively increase consumer traffic to itswebsite and to drive awareness of its insurance products and services. TheCompany employs various means of advertising, which consist primarily of onlineadvertising, portal advertising, e-mail campaigns,strategic partnerships withhigh-profile online companies that can drive significant traffic to its site,and sponsored search.

 

***Online Direct-Response Advertising.***InsWeb’s online direct-response advertising, which drives the majorityof InsWeb’s consumer traffic, is intended to create a presence for InsWeb on awide range of websites. InsWeb’s key advertisements are delivered throughcontent sponsorships, banners and keywords on financial, news, real estate,classifieds, automobile, directory and general interest sites. InsWeb and someof its third-party marketing providers also conduct advertising campaignspromoting InsWeb through emails and electronic newsletters. InsWeb’sadvertisements are targeted primarily at consumers who may be actively seekinginsurance.

 

***Online Relationships.*** InsWeb seeks out relationships with companies whose websites feature ahigh volume of traffic or a substantive focus that is related to the purchaseof insurance coverage, such as sites related to automobiles, homes or personalfinances. Agreements with these online companies typically provide that InsWebpay the online company a transaction fee (based on click-throughs or consumerleads) and in very limited cases, a fixed fee. Online companies integrate linksinto their websites connecting to InsWeb’s marketplace. InsWeb providesfunctionality to further integrate with online companies and, in some cases,provides co-branding functionality whereby the online company’s logo ispresented on the InsWeb marketplace to those consumers directed to InsWeb’smarketplace from a company’s site. Many of InsWeb’s online advertising andmarketing agreements have a 30 to 90 day term, with either party having a rightto terminate the agreement on seven days notice or less.

 

***Traditional Consumer Marketing.*** Currently, InsWeb’s consumer marketing is focused on online marketingefforts. However, in the past, InsWeb has engaged in traditional advertising,including radio, television and print advertising, and may do so again in thefuture.

 

**Local Insurance Agent Marketingand Acquisition**

 

InsWeb’s local agentsales and marketing efforts seek to identify, through direct mail, email andtelephone solicitation, referrals from other local agents and generaladvertising, personal lines insurance agents interested in participating in theAgentInsider program. In addition, sales efforts are directed toward securingcarrier assistance, either through sponsored agreements, whereby insurancecarriers promote and market the AgentInsider program to their participatinglocal agents, or simply by inviting InsWeb sales personnel to agent gatherings.At December 31, 2007, the Company had five major insurance carriers whohave contracted to promote or sponsor AgentInsider for their local agents.

 

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**Technology**

 

**Architecture and Interfaces**

 

InsWeb has investedsignificant resources to develop and deploy its two proprietary technologyplatforms: the original, consumer-facing platform, and the newer AgentInsiderplatform. InsWeb believes these platforms constitute a significant competitiveadvantage.

 

InsWeb’s softwarearchitecture facilitates interoperability among software components to maximizeresponsiveness, flexibility and reliability. This architecture enables InsWebto efficiently develop and deploy new insurance company-specific modules forunderwriting and data delivery. It also simplifies the process of providingInsWeb’s core marketplace functionality for use on insurance company sites. Inorder to speed implementation for each participating insurance company, InsWebhas developed transmission software components which allow consumer data to becustom-formatted for delivery to each insurance company based on therequirements of the insurance company’s computer system. InsWeb has developedcustom communication software to provide multiple types of real-timetelecommunication links to its participating insurance companies. Thesecomponents provide a variety of solutions to the insurance companies to bestmeet their needs and interface with their legacy systems. InsWeb has devotedsignificant time and resources to maximize the efficiency of integrating newinsurance companies into its online marketplace and to create a flexible,customizable Web interface. InsWeb’s front-end user interface is accessible toconsumers via standard Web browsers and is designed without unnecessarygraphics that would increase download time.

 

InsWeb’s AgentInsiderplatform, launched in September 2005, powers a self-service web site whichallows agents to manage their accounts entirely online, including registration,the choice of zip codes in which the agent wishes to receive leads, the numberof leads they wish to receive, their bids for different types of leads, andfinally the financial end of the transaction, namely the entry and automaticprocessing of their credit card information. This platform enables InsWeb totransact with thousands of agents with only a handful of customer servicerepresentatives.

 

InsWeb’s server softwareis designed as a high-volume transaction-processing environment, with a focuson reliability, redundancy and around-the-clock availability. It is designed toenable the system to respond rapidly and to simultaneously underwrite and ratea consumer’s profile against all participating insurance companies’ criteria.The software is also designed for scalability, enabling InsWeb to expandprocessing capacity through the addition of more processors and servers astransaction volumes increase.

 

**Security**

 

InsWeb employsthird-party firewall technology to protect its corporate network from intrusionand uses proprietary designs to isolate confidential data on its network sothat only selected information is publicly available on its website. Consumerinformation is transmitted to InsWeb’s site using Secure Socket Layerencryption technology, a widely used technology for transmitting encoded datavia a Web browser. InsWeb employs a number of other encryption methods fordelivery of consumer information to insurance companies or local agents. InsWebprotects its system management functions using security models integrated withthe operating system. Additionally, some sensitive software applicationsincorporate proprietary authentication schemes.

 

**Site Operations**

 

InsWeb’s hardwareservers, storage systems, Internet connections, back-up strategies and networkare designed to allow its online marketplace to operate continuously. InsWeb’smain Web servers are located at its headquarters facility in Gold River,California. InsWeb uses a number of internally-developed and third-partysoftware products to monitor the performance and availability of its websiteand core products. InsWeb continuously monitors consumer traffic, responsetimes and capacity to ensure a high quality of service for consumers andinsurance companies. InsWeb maintains a disaster recovery site in theSacramento, California area to facilitate the operation of its onlinemarketplace in case of a failure at its main facility.

 

**ProductDevelopment**

 

InsWeb devotes resourcesto improving the structure of its products and delivering additional tools thatallow insurance providers to effectively reach consumers. InsWeb generallyfollows a monthly release schedule for new versions of its online user interface,which may incorporate technology advances, new product features andimprovements in consumer interactivity. InsWeb also invests in refining itsonline consumer tools and research materials, as well as developing new supportproducts. InsWeb continues to research new methods of designing more usefulinsurance-related material and presenting it to the consumer in a moremeaningful context.

 

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InsWeb’s technologyexpenses were approximately $3.1 million in 2007, $4.5 million in2006, and $5.4 million in 2005.

 

**PrivacyPolicy**

 

InsWeb believes that theprivacy of personally identifiable information of Internet users is becomingincreasingly important as the use of the Internet for electronic commercecontinues to grow. InsWeb has adopted a privacy policy regarding the use anddisclosure of consumer information that is collected on its online marketplace.InsWeb is a licensee of the TRUSTe Privacy Program and adheres to thesestandards regarding the protection of the personally identifiable informationof Internet users.

 

**Competition**

 

The online insurancedistribution market, like the broader electronic commerce market, is highlycompetitive. InsWeb competes with other companies that provide quotes and sellinsurance policies online, as well as with:

 

·                  single insurance company websites that offer quotes for their owninsurance products online or by telephone;

 

·                  other lead generation services that provide consumer leads to insuranceagents;

 

·                  Web-based information delivery services that use generic filings withstate regulators to deliver estimated price quotes from various insurancecompanies;

 

·                  Web-assisted agency distribution services, that provide anInternet-based distribution channel for traditional insurance agencies;

 

·                  online workplace marketers that sell insurance to employees over theiremployer’s intranet; and

 

·                  providers of software technology to insurance companies and othercompetitors that may target electronic commerce solutions for the insuranceindustry.

 

InsWeb believes the principal bases for competition inthe online insurance distribution market include:

 

·                  brand awareness;

 

·                  variety and quality of insurance company selection;

 

·                  strength of relationships and depth of technology integration withinsurance companies;

 

·                  accuracy of insurance quotes;

 

·                  breadth and pricing of insurance product selection;

 

·                  speed, accessibility and convenience;

 

·                  quality and quantity of website content; and

 

·                  relationships with other online companies.

 

**GovernmentRegulation**

 

The insurance industryis subject to extensive regulation under state laws. Insurance laws andregulations cover all aspects of the insurance process, including salestechniques, underwriting for eligibility, rates, compensation, claim paymentsand record keeping by licensed insurance companies and insurance agents. InsWebperforms functions for licensed insurance companies and is, therefore, requiredto comply with a complex set of rules and regulations that typically varyfrom state to state. If InsWeb fails to comply with these rules andregulations, InsWeb, an insurance company doing business with InsWeb, ourofficers, or agents with whom we contract could be subject to varioussanctions, including censure, fines, a cease-and-desist order or otherpenalties. This risk, as well as changes in the regulatory climate or theenforcement or interpretation of existing law, could require changes to InsWeb’sbusiness or otherwise harm InsWeb’s business. Furthermore, because theapplication of online commerce to the insurance market is relatively new, theimpact of current or future regulations on InsWeb’s business is difficult toanticipate.

 

In order to provide thetypes of services that require an insurance license, InsWeb established InsWebInsurance Services, Inc. in 1998 and currently maintains property andcasualty licenses and life and health licenses in 50 states and the District ofColumbia. In addition, officers and employees who are engaged in the sale ofinsurance are licensed as insurance agents. InsWeb’s operations depend on thevalidity of and continued good standing under the licenses and approvalspursuant to which InsWeb’s subsidiaries, licensed officers and agents operate.Licensing laws and regulations vary depending on the jurisdiction. Theapplicable licensing laws and regulations are 

 

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subject to amendment or interpretation by regulatoryauthorities. Such authorities generally are vested with broad discretionconcerning the allowance, renewal and revocation of licenses and approvals. Theinability to obtain the requisite agent licenses or other necessary licenses,permits, or authorizations could harm InsWeb’s business.

 

**IntellectualProperty**

 

InsWeb regards itsintellectual property as critical to its success, and relies upon trademark,copyright and trade secrets laws in the United States and other jurisdictionsto protect its proprietary rights. The INSWEB mark has been registered in theUnited States, France, Germany, South Korea, Japan and the United Kingdom, andmany other countries. Other U.S. and worldwide trademark applications andregistrations include, but are not limited to, AgentInsider, AgentInsider.com,InsWeb.com, Where You and Your Insurance Really Click, and Lower Your InsuranceCosts, Not Your Expectations. InsWeb has applied for various patents on itscore technology and related patentable subject matter; and two patents havebeen issued. InsWeb’s pending trademark registrations and patent applicationsmay not be approved or granted; or, if granted, may be successfully challengedby others or invalidated through administrative process or litigation. Inaddition, effective patent, copyright, trademark, and trade secret protectionmay be unavailable or limited in some foreign countries. InsWeb also seeks toprotect its proprietary rights through physical and technological securitymeasures, and through the use of confidentiality or license agreements with itsbusiness partners, employees, consultants, advisors and others. Despite InsWeb’sefforts to protect its proprietary rights from unauthorized use or disclosure,employees, consultants, advisors or others may not maintain the confidentialityof InsWeb’s proprietary information, and this proprietary information mayotherwise become known, or be independently developed, by competitors. Thesteps InsWeb has taken may not prevent misappropriation of its proprietaryrights, particularly in foreign countries where laws or law enforcementpractices may not protect its proprietary rights as fully as in the UnitedStates.

 

InsWeb licenses itstrademarks and similar proprietary rights to third parties. While InsWebattempts to ensure that the quality of its brand is maintained by thesecompanies, they may take actions that could harm the value of InsWeb’s proprietaryrights or the reputation of InsWeb or its services.

 

From time to time, InsWeb receives notice of claims of infringement ofother parties’ proprietary rights or claims that its own patents or otherintellectual property rights are invalid. We are currently a party, as both defendant and plaintiff, to pendinglitigation, as described in “Item 3. Legal Proceedings”. In the past, InsWeb has been subject to otherinfringement claims in the ordinary course of its business, including thepatent infringement claims described in the section titled “Legal Proceedings”and other claims of alleged infringement of the trademark rights of thirdparties by InsWeb and the companies with which it does business. Any of theseclaims, with or without merit, could be time consuming to defend, result incostly litigation, divert managementattention and resources or require InsWeb to enter into royalty or licensingagreements. Licenses may not be available on reasonable terms, if at all, andthe assertion or prosecution of any infringement claims could significantlyharm InsWeb’s business.

 

**Employees**

 

As of December 31,2007, InsWeb had 62 full-time employees. InsWeb has never had a work stoppage,and none of its employees are currently represented under collective bargainingagreements. InsWeb considers its relations with its employees to be good.InsWeb believes that its future success will depend in part on the continuedservice of its senior management and key technical personnel and its ability toattract, integrate, retain and motivate highly qualified technical andmanagerial personnel. Competition for qualified personnel in InsWeb’s industryand geographical location is intense. InsWeb may not continue to be successfulin attracting and retaining a sufficient number of qualified personnel toconduct its business in the future.

 

We have no long-termemployment agreements with any of our key personnel. However, the executive officers andcertain other key members of management are eligible to participate in theInsWeb Executive Retention and Severance Plan (the “Plan”) approved by theBoard of Directors on June 14, 2004. Participants in the Plan are entitledto receive cash severance payments and health and medical benefits in the eventtheir employment is terminated in connection with a change in control.Participants will also receive these benefits if InsWeb terminates theiremployment other than for “cause” or if the participant voluntarily terminateshis employment for “good reason” following certain specified actions by InsWeb.Upon any other termination of employment, the participant will be entitled onlyto accrued salary through the date of termination and any other vestedbenefits.

 

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**AvailableInformation**

 

For furtherdiscussion concerning our business, see the information included in “Item 7Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and “Item 8 Financial Statements and Supplementary Data” of thisreport.

 

We make availablefree of charge through our Web site at *www.insweb.com*our annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and all amendments to those reports, ifapplicable, pursuant to Sections 13(a) and 15(d) of the SecuritiesExchange Act of 1934, as amended, as soon as reasonably practicable after thematerial is electronically filed with or furnished to the Securities andExchange Commission (“SEC”).

 

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**Item 1A. Risk Factors.**

 

*Set forth below are the risks thatwe believe are material to our investors. This section contains forward-lookingstatements. You should refer to the explanation of the qualifications andlimitations on forward-looking statements set forth at the beginning ofItem 1 of this report.*

 

**We have a history of losses and we maynot maintain profitability**

 

Although we had operating income of $2.1 millionin 2007,we incurred operating losses of $5.8 million in 2006 and$6.3 million in 2005. As of December 31, 2007, our accumulateddeficit was $189.5 million. Our operating results for future periods aresubject to numerous uncertainties, and we may not generate sufficient revenuesto maintain profitability on a quarterly or annual basis. If we are unable tosustain profitability, we may need to seek additional financing to continue ourbusiness operations. Such financing could be on terms that are dilutive to ourexisting stockholders or could involve the issuance of securities that have rightsand preferences that are senior to those associated with our common stock.Moreover, if such financing were not available or were available only uponterms that were unacceptable to us, we could be required to delay, reduce, or cease certain of our operations,any of which could materially harm our business and financial results.

 

**If we are unable to continue generating positive cash flowsfrom operations, our ability to operate could suffer or cease**

 

While we were profitable for 2007, our operating activities in the past have consumedsubstantial amounts of cash, cash equivalents and short-term investments(provided $2.5 million in 2007, used $3.6 million in 2006, and used $5.3million in 2005).At December 31, 2007, we had $10.8 million in cash andcash equivalents. In order to remain competitive, we must continue to makeinvestments essential to our ability to operate, including in particular,investments in direct consumer marketing. In addition, we will continueto face the costs of being apublic company. In the event that we are unable to generate revenues sufficientto offset our costs, or if our costs of marketing and operations are greaterthan we anticipate, we may be unable to grow our business at the rate desiredor may be required to delay, reduce, or cease certain of our operations, any ofwhich could materially harm our business and financial results.

 

**Our business is difficult to evaluatebecause our market is evolving rapidly and our business model is unpredictable**

 

An evaluation of our future prospects is verydifficult. An investor in our common stock must consider the uncertainties inrelatively new and rapidly evolving markets. These uncertainties include:

 

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

 

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

 

·                  our ability to retain keyemployees; and

 

·                  our reliance on key insuranceproviders and ability to retain insurance providers.

 

Our business strategy may not be successful and wemay not be able to successfully address these uncertainties. Moreover, ourability to take the foregoing steps may be hampered by our limited financialresources should we fail to rapidly increase revenues or should increasedrevenues be more than offset by increased operating expenses.

 

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**Our future revenues are unpredictableand our operating results are likely to fluctuate from quarter to quarter**

 

Due to the evolving nature of our business modeland the high proportion of our revenues that are derived from consumer trafficto our website, our future revenues are inherently difficult to forecast. In light of recent changes in ourbusiness model, including the evolution of InsWeb’s agent network program,InsWeb believes that period-to-period comparisons of its operating results arenot necessarily meaningful and should not be relied upon as an indication offuture performance.

 

Factors that may cause fluctuations in ouroperating results include the following, many of which are outside our control:

 

·                  We may experienceconsumer dissatisfaction with our online marketplace as we add or changefeatures, or as the insurance coverage offered by participating insurancecompanies varies;

 

·                  We may experienceincreases in our direct marketing expenses due to unanticipated increases inthe cost of online advertising for insurance;

 

·                  Consumer traffic mayalso fluctuate as a result of changes in level of advertising by entities withwhich we have insurance marketing relationships;

 

·                  Our revenues may beharmed if we lose one or more significant insurance company relationships or ifany of our participating insurance companies merge with one another;

 

·                  Our revenues may beharmed by inadequatelevels of participation by local personal lines insurance agents in our new agent network initiative, if theagent network program offered by our current third-party intermediary is unsuccessfulor if our current intermediary should cease to serve in this capacity and weare unsuccessful in securing a replacement;

 

·                  Use of the Internetby consumers may fluctuate due to seasonal factors or other uncontrollablefactors affecting consumer behavior;

 

·                  Our ability toconvert site visits into transaction fees and/or revenue from insurance agencyactivities may fluctuate due to changes in our user interface or other featureson our site; and

 

·                  Our ability togenerate transaction fees and/or revenue from insurance agency activities mayalso be harmed due to technical difficulties on our website that hamper aconsumer’s ability to start or complete a shopping session.

 

**Seasonality affecting insurance shoppingand Internet advertising may cause fluctuations in our operating results**

 

We have experienced seasonality in our businessassociated with general slowness in the insurance industry during the year-endholiday period. In addition, online advertising for insurance products becomesmore expensive during the holiday period as internet portals and other onlinefirms dedicate an increasing percentage of their inventory to seasonal goodsand services. Because of this seasonality, investors may not be able to predictour annual operating results based on a quarter-to-quarter comparison of ouroperating results. We believe seasonality will have an ongoing impact on ourbusiness.

 

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

 

Automobile insurance accounted for approximately84% of our transaction revenues in 2007, approximately 76% in 2006 and approximately79% in 2005. We anticipate that automobile insurance will continue to accountfor a substantial portion of our revenues for the foreseeable future. As aresult, if we fail to attract a broad base of consumers to shop for automobileinsurance on our site, our ability to generate revenue will be reduced and ourbusiness will be harmed. In addition, property and casualty insurance,including automobile insurance, is subject to operating cycles. During a cyclein which loss ratios rise, insurance companies may choose to restrict theamount of business they write while they await approval of rate increases fromthe various state insurance departments. Our business could be harmed if ourparticipating insurance companies reduce their participation in our onlinemarketplace.

 

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**We areexposed to increased costs and risks associated with complying with theincreasing regulation of corporate governance and disclosure standards**

 

We have spent a significant amount ofmanagement time and external resources to comply with changing laws,regulations and standards relating to corporate governance and publicdisclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations andNasdaq Stock Market rules. In particular, Section 404 of theSarbanes-Oxley Act of 2002 requires management’s annual review and evaluationof our internal control systems, and attestations of the effectiveness of thesesystems by our independent registered public accounting firm. The current requirement is for management’sassessment by year end 2007 and for theindependent registered public accounting firm audit of management’sassessment to be completed by year end 2008. This process may require us to hire additional personnel and outsideadvisory services which will result in significant additional accounting andlegal expenses. We may be unsuccessful in obtaining an unqualified report onthe effectiveness of, our internal controls over financial reporting from ourindependent auditors. In the event that our chief executive officer or chieffinancial officer determine that our controls over financial reporting are noteffective as defined under Section 404, investor perceptions of ourcompany may be adversely affected and could cause a decline in the market priceof our stock.

 

**If we are unable to promote our brands and expand our brandrecognition, our ability to draw consumers and agents to our services will belimited**

 

A growing number of websites offer services thatare similar to and competitive with the services offered on our onlineinsurance marketplace. Therefore, a positive recognition of our brand iscritical to attracting additional consumers to our website. Our currentconsumer marketing program consists of the maintenance of certain networkonline relationships and other selective cost effective marketing campaigns,designed to maintain consumer awareness of InsWeb and our online insurancemarketplace. InsWeb’s local agent sales andmarketing efforts seek to identify personal line insurance agents interested inparticipating in the AgentInsider program through direct mail, email andtelephone solicitation, referrals from other local agents and generaladvertising. In addition, sales efforts are directed toward signing carriersponsored agreements, whereby insurance carriers promote and market theAgentInsider program to their participating local agents, both captive andindependent. In order to attract and retain consumers and local agentsand to promote and maintain our brands, we are continuing our financialcommitment to both the consumer and agent marketing efforts. However, if ourmarketing efforts do not generate a corresponding increase in revenues or weotherwise fail to successfully promote our brand, or if these efforts requireexcessive expenditures, our business will be harmed. Moreover, if consumers oragents do not perceive our existing services to be of high quality, or if wealter or modify our brand image, introduce new services or enter into newbusiness ventures that are not favorably received, the value of our brand couldbe harmed.

 

Our ability to maintain a positive recognition ofour brand also depends in part on the quality of the products and servicesconsumers receive from our participating providers, including timely responseto requests for quotes or coverage. If we are unable to provide consumers withhigh-quality products and services, the value of our brand may be harmed andthe number of consumers using our services may decline.

 

**Competition in the market for online distribution ofinsurance is intense, and if we are unable to compete effectively with currentcompetitors or new competitors that enter the market, the fees paid to us byparticipating insurance companies may fall, the fees charged by onlinecompanies with which we have strategic relationships may rise, and our marketshare may suffer**

 

The online insurance distribution market, like thebroader electronic commerce market, is both rapidly evolving and highlycompetitive. Increased competition, particularly by companies offering onlineinsurance distribution, could reduce the fees we are able to charge ourparticipating insurance providers or increase the fees we are required to payfor online advertising, resulting in reduced margins or loss of market share,any of which could harm our business. In addition, our current and futurecompetitors may be able to:

 

·                 undertake more extensivemarketing campaigns for their brands and services;

 

·                 devote more resources to websiteand systems development;

 

·                 adopt more aggressive pricingpolicies; and

 

·                 make more attractive offers topotential employees, online companies and third-party service providers.

 

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Accordingly, we may not be able to maintain orgrow consumer traffic to our website and our base of participating insurancecompanies, our competitors may grow faster than we do, or companies with whomwe have strategic relationships may discontinue their relationships with us,any of which would harm our business.

 

**We do not have exclusive relationships or long-term contractswith insurance companies, which may limit our ability to retain these insurancecompanies as participants in our marketplace and maintain the attractiveness ofour services to consumers**

 

We do not have an exclusive relationship with anyof the insurance companies whose insurance products are offered on our onlinemarketplace, and thus, consumers may obtain quotes and coverage from theseinsurance companies without using our website. Our participating insurancecompanies also offer their products directly to consumers through insuranceagents, mass marketing campaigns or through other traditional methods ofinsurance distribution. In most cases, our participating insurance companiesalso offer their products and services over the Internet, either directly toconsumers or through one or more of our online competitors, or both. Inaddition, most of our agreements with our participating insurance companies arecancelable at the option of either party upon 90 days’ notice or less.Furthermore, our agreements permit the insurance company to limit itsparticipation to certain states. We have experienced, and expect to continue toexperience, reductions in the level of participation in our marketplace orcomplete termination by participating insurance companies. These reductions inparticipation, terminations, or an inability to attract additional insurancecompanies to our marketplace could materially affect our revenues and harm ourbusiness.

 

**The outcome and impact of the securitiesclass action lawsuit involving InsWeb is uncertain**

 

A securities classaction lawsuit was filed on December 5, 2001 in the United States DistrictCourt for the Southern District of New York, (the “Court”) purportedly onbehalf of all persons who purchased our common stock from July 22, 1999through December 6, 2000. The complaint named as defendants InsWeb,certain current and former officers and directors, and three investment bankingfirms that served as underwriters for InsWeb’s initial public offering in July 1999.The complaint, as subsequently amended, alleges violations of Sections 11 and15 of the Securities Act of 1933 and Sections 10 and 20 of the SecuritiesExchange Act 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 the underwritersallocated to those investors material portions of the shares of our stock soldin the offerings and (ii) the underwriters had entered into agreementswith customers whereby the underwriters agreed to allocated shares of the stocksold in the offering to those customers in exchange for which the customersagreed to purchase additional shares of InsWeb stock in the aftermarket atpre-determined prices. No specific damages are claimed. Similar allegationshave been made in lawsuits relating to more than 300 other initial publicofferings conducted in 1999 and 2000, all of which have been consolidated forpretrial purposes. In October 2002, all claims against the individualdefendants were dismissed without prejudice. In February 2003, the Courtdismissed the claims in the InsWeb action alleging violations of the SecuritiesExchange Act of 1934 but allowed the plaintiffs to proceed with the remainingclaims. In June 2003, the plaintiffs in all of the cases presented asettlement proposal to all of the issuer defendants. Under the proposedsettlement, the plaintiffs woulddismiss 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 the District Court was consideringfinal approval of the settlement, the Second Circuit Court of Appeals vacatedthe class certification of plaintiffs’ claims against the underwriters in sixcases designated as focus or test cases. On December 14, 2006, theDistrict Court ordered a stay of all proceedings in all of the lawsuits pendingthe outcome of plaintiffs’ petition to the Second Circuit for rehearing en bancand resolution of the class certification issue. On April 6, 2007, theSecond Circuit denied the 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. There is no assurance that a new settlement will benegotiated, and then approved. If the settlement is not negotiated andsubsequently approved, InsWeb intends to defend the lawsuit vigorously. The litigation and settlement process isinherently uncertain and management cannot predict the outcome, though, ifunfavorable, it could have a material adverse effect on InsWeb’s financialcondition, results of operations and cash flows

 

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**Laws and regulations that govern the insurance industry couldexpose us, or our participating insurance companies, our officers, or agentswith whom we contract, to legal penalties if we fail to comply, and couldrequire changes to our business**

 

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

 

**If we are unable to safeguard the security and privacy ofconsumers’ and participating insurance companies’ confidential data, consumersand insurance companies may not use our services and our business may be harmed**

 

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

 

**System failures could reduce or limit traffic on our websiteor interrupt our communications with individual insurance companies and harmour ability to generate revenue**

 

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

 

Additionally, several of our participatinginsurance companies have chosen a technical solution that requires that ourwebsite servers communicate with these insurance companies’ computer systems inorder to perform the underwriting and risk analysis and rating functionsrequired to generate quotes. Thus, the availability of quotes from a giveninsurance company may depend in large part upon the reliability of thatinsurance company’s own computer systems, over which we have no control.

 

**Our facilities and systems are vulnerable to naturaldisasters and other unexpected losses, and we may not have adequate insuranceto cover such losses**

 

Our computer hardware operations are located inleased facilities in Gold River, California. If this location experienced asystem failure, the performance of our website would be harmed. These systemsare also vulnerable to damage from fire, power loss, telecommunicationsfailures, break-ins, natural disasters and similar events. If we seek toreplicate our systems at other locations, we will face a number of technicalchallenges, particularly with respect to database replications, which we maynot be able to address successfully. Although we carry property and businessinterruption insurance, our coverage may not be adequate to compensate us forall losses that may occur. Our servers may also be vulnerable to computerviruses, physical or electronic break-ins and similar disruptions.

 

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**We rely on the services of our executive officers and otherkey personnel, whose knowledge of our business and the insurance industry andtechnical expertise would be extremely difficult to replace**

 

Our future success is substantially dependent onthe continued services and continuing contributions of our senior managementand other key personnel, particularly Hussein A. Enan, Chairman of our Boardand Chief Executive Officer, and the loss of the services of any of ourexecutive officers or other key employees could harm our business. We have no long-term employment agreements with any of our keypersonnel, although Jaimie Pickles, our President and Chief Operating Officer,Kiran Rasaretnam, our Chief Financial Officer, L. Eric Loewe, our Senior VicePresident and General Counsel, and Steven Yasuda, our Controller and ChiefAccounting Officer and certain other key employees are entitled to certainseverance benefits should their employment be involuntarily terminated. Wemaintain a $2 million life insurance policy on Mr. Enan that namesInsWeb as the beneficiary, but we maintain no similar insurance on any of ourother key employees. InsWeb has granted stock options as incentives toexecutive officers, new employees and certain other key personnel. As the valueof these incentives is highly dependent on an increase in the market price ofour common stock, we may be unable to retain such key employees, nor retain orrecruit other officers and key employees in the future.

 

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

 

From time to time we have been subject to claimsof infringement of other parties’ proprietary rights or claims that our owntrademarks, patents or other intellectual property rights are invalid. We arecurrently a party, as both defendant and plaintiff, to pending patentlitigation, as described in “Item 3. Legal Proceedings.”  In the past,we have been subject to other infringement claims in the ordinary course ofbusiness, including claims of alleged infringement of the patent and trademarkrights of third parties by us and companies with which we have businessrelationships. The pending litigation, and future claims of this type, with orwithout merit, could be time-consuming to defend, result in costly litigation,divert management attention and resources or require us to enter into royaltyor license agreements. License agreements may not be available on reasonableterms, if at all, and the assertion or prosecution of any infringement claimscould significantly harm our business.

 

**Our stock price has fluctuated widely**

 

The trading price of our common stock has beenvolatile and may be significantly affected by factors including actual oranticipated fluctuations in our operating results, new products or newcontracts by us or our competitors, loss of key insurance providers, conditionsand trends in the electronic commerce and insurance industries, general marketconditions and other factors. These fluctuations may continue and could harmour stock price. Any negative change in the public’s perception of theprospects of Internet or electronic commerce companies could also depress ourstock price regardless of our results.

 

**Delaware law and our charter documentscontain provisions that could discourage or prevent a potential takeover, evenif such a transaction would be beneficial to our stockholders**

 

Provisions of Delawarelaw and our certificate of incorporation and bylaws could make more difficultthe acquisition of us by means of a tender offer, a proxy contest, orotherwise, and the removal of incumbent officers and directors.

 

**Item 1B.Unresolved Staff Comments.**

 

Not applicable.

 

**Item 2.Properties.**

 

InsWeb’s corporateheadquarters and its principal administrative, product development, sales andmarketing operations are located in a 55,000 square foot facility in theSacramento, California area, which InsWeb occupies under a lease expiring in2011. InsWeb also leases approximately 75,000 square feet of office space inRedwood City, California under leases expiring through September 2008.These facilities were formerly occupied by InsWeb as its headquarters and werevacated by InsWeb in December 2000 when it consolidated its operations atits present facility.  This space iscurrently subleased through the remainder of InsWeb’s lease term.

 

InsWeb believes that itsexisting facilities are adequate to meet its needs for future growth, and thereshould be no need to lease additional or alternative space in the near term.

 

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**Item 3. LegalProceedings.**

 

**Securities Class Action**

 

A securities class action lawsuit was filed on December 5,2001 in the United States District Court for the Southern District of New York,(the “Court”) purportedly on behalf of all persons who purchased our commonstock from July 22, 1999 through December 6, 2000. The complaintnamed as defendants InsWeb, certain current and former officers and directors,and three investment banking firms that served as underwriters for InsWeb’sinitial public offering in July 1999. The complaint, as subsequentlyamended, alleges violations of Sections 11 and 15 of the Securities Act of 1933and Sections 10 and 20 of the Securities Exchange Act of 1934, on the groundsthat the prospectuses incorporated in the registration statements for theoffering failed to disclose, among other things, that (i) the underwritershad solicited and received excessive and undisclosed commissions from certaininvestors in exchange for which the underwriters allocated to those investorsmaterial portions of the shares of our stock sold in the offerings and (ii) theunderwriters had entered into agreements with customers whereby theunderwriters agreed to allocated shares of the stock sold in the offering tothose customers in exchange for which the customers agreed to purchaseadditional shares of InsWeb stock in the aftermarket at pre-determined prices.No specific damages are claimed. Similar allegations have been made in lawsuitsrelating to more than 300 other initial public offerings conducted in 1999 and2000, all of which have been consolidated for pretrial purposes. In October 2002,all claims against the individual defendants were dismissed without prejudice.In February 2003, the Court dismissed the claims in the InsWeb actionalleging violations of the Securities Exchange Act of 1934 but allowed theplaintiffs to proceed with the remaining claims. In June 2003, theplaintiffs in all of the cases presented a settlement proposal to all of theissuer defendants. Under the proposed settlement, the plaintiffs would dismissand release all claims against participating defendants in exchange for acontingent payment guaranty by the insurance companies collectively responsiblefor insuring the issuers in all the related cases, and the assignment orsurrender to the plaintiffs of certain claims the issuer defendants may haveagainst the underwriters. InsWeb and most of the other issuer defendants haveaccepted the settlement proposal. While the District Court was consideringfinal approval of the settlement, the Second Circuit Court of Appeals vacatedthe class certification of plaintiffs’ claims against the underwriters in sixcases designated as focus or test cases. On December 14, 2006, theDistrict Court ordered a stay of all proceedings in all of the lawsuits pendingthe outcome of plaintiffs’ petition to the Second Circuit for rehearing en bancand resolution of the class certification issue. On April 6, 2007, theSecond Circuit denied plaintiffs’ petition for rehearing, but clarified thatthe plaintiffs may seek to certify a more limited class in the District Court.Because of the significant technical barriers presented by the Court’sdecision, the parties withdrew the proposed settlement and the plaintiffs filedan amended complaint.  There is noassurance that a new settlement will be negotiated, and then approved. If thesettlement is not negotiated and subsequently approved, InsWeb intends todefend the lawsuit vigorously. The litigation and settlement process isinherently uncertain and management cannot predict the outcome, though, ifunfavorable, it could have a material adverse effect on InsWeb’s financialcondition, results of operations and cash flows.

 

**Section 16(b) Lawsuit**

 

On October 12, 2007, Vanessa Simmonds, apurported stockholder of InsWeb, filed a complaint in the United StatesDistrict Court for the Western District of Washington, against InsWeb and twoinvestment banking firms that served as underwriters for the initial publicoffering of our common stock in July 1999. The complaint alleges that:  (i) thedefendants, other underwriters of the offering, and unspecified officers,directors and principal stockholders of InsWeb constituted a “group” that ownedin excess of 10% of InsWeb’s outstanding common stock between July 23,1999 and July 20, 2000; (ii) the defendants were therefore subject tothe “short swing” prohibitions of Section 16(b) of the SecuritiesExchange Actgroup of 1934; and (iii) the defendants engaged in purchasesand sales, or sales and purchases, of the Company’s common stock within periodsof less than six months in violation of the provisions of Section 16(b).  The complaint seeks disgorgement of allprofits allegedly received by the defendants, with interest and attorneys fees,for transactions in violation of Section 16(b).  InsWeb, as the statutory beneficiary of anypotential Section 16(b) recovery, is named as a nominal defendant in thecomplaint.  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 a stipulated order that InsWeb need not answer orotherwise respond to the complaint.  InsWeb intends to defend the lawsuitvigorously. The litigation and settlementprocess is inherently uncertain and management cannot predict the outcome, though,if unfavorable, it could have a material adverse effect on InsWeb’s financialcondition, results of operations and cash flows.

 

**Patent Litigation**

 

On November 30, 2007, Autobytel Inc.filed acomplaint in the United States District Court for the Eastern District of Texasagainst InsWeb and three other defendants. The complaint alleges that InsWeb and the other defendants infringedU.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 computernetwork.  The complaint contains genericallegations that InsWeb infringed the ‘517 patent by making, using, offering tosell and selling systems and/or methods that embody the invention 

 

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claimedin the ‘517 patent and/or actively inducing and/or contributing to others’infringement of such inventions.  Thecomplaint seeks unspecified monetary damages and injunctive relief.  On February 25, 2008, InsWeb filed ananswer and counterclaim denying infringement of the ‘517 patent and assertinginvalidity of the patent and other affirmative defenses.

 

On March 11, 2008, InsWeb filed a complaintin the United States District Court for the Southern District of Californiaagainst Autobytel, Inc., Autobytel I Corporation (formerly known as AVV, Inc.)and Dominion Enterprises.  The complaintalleges that the defendants have infringed InsWeb’s U.S. Patent No. 6,898,597,which relates to an event logging system that monitors for the occurrence ofpredefined website usage events. Defendant Autobytel, through its wholly-ownedsubsidiary AVV, marketed and sold a product known as WebControl that embodiesthe invention claimed in InsWeb’s patent. In January 2008, Autobytel soldAVV, including the WebControl product, to Dominion Enterprises.  InsWeb is seeking monetary damages in anamount to be determined at trial from each defendant and a permanent injunctionagainst further acts of infringement.

 

InsWebintends to vigorously defend the Texas lawsuit and prosecute the Californiaaction.  The litigation and settlementprocess is inherently uncertain and management cannot predict the outcome,though, if unfavorable, it could have a material adverse effect on InsWeb’sfinancial condition, results of operations and cash flows.

 

**Item 4.Submission of Matters to a Vote of Security Holders.**

 

InsWeb did not submitany matters to a vote of our security holders during the fourth quarter of2007.

 

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**PART II**

 

**Item 5.Market for the Registrant’s Common Equity and Related Stockholder Matters.**

 

InsWeb’s common stock isquoted on the Nasdaq Global Market under the symbol “INSW.” As of December 31,2007, there were approximately 1,900 stockholders of record. Certain shares areheld by brokers and other institutions on behalf of stockholders, and we areunable to determine the total number of stockholders represented by theserecord holders. The following table sets forth, for the quarters indicated, thehigh and low sales price per share of InsWeb’s common stock as reported on theNasdaq Global Market:

 
| ** **              | ** ** | **Price Range   Quarter Ended** | ** ** |
|-------------------------|------------|------------------------------------------------|------------|
| ** **              | ** ** | **High**                                       | ** ** | **Low** | ** ** |
| **2007**                |       |                                           |       |   |   |
| December 31, 2007  |       | $                                              | 11.40      |   | $ | 8.28 |   |
| September 30, 2007 |       | $                                              | 9.15       |   | $ | 6.72 |   |
| June 30, 2007      |       | $                                              | 8.67       |   | $ | 3.06 |   |
| March 31, 2007     |       | $                                              | 4.71       |   | $ | 2.93 |   |
|                    |       |                                           |       |   |   |
| **2006**                |       |                                           |       |   |   |
| December 31, 2006  |       | $                                              | 3.74       |   | $ | 2.03 |   |
| September 30, 2006 |       | $                                              | 2.88       |   | $ | 1.65 |   |
| June 30, 2006      |       | $                                              | 3.25       |   | $ | 2.04 |   |
| March 31, 2006     |       | $                                              | 3.86       |   | $ | 2.12 |   |

 

InsWeb has not paid anycash dividends on its capital stock. InsWeb currently intends to retain futureearnings, if any, for use in the operation and expansion of our business and,therefore, does not anticipate paying any cash dividends in the foreseeablefuture.

 

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**Item 6.Selected Financial Data.**

 

The following selected consolidated financial data shouldbe read in conjunction with “Item 7—Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and the consolidated financialstatements and the notes thereto included elsewhere in this Annual Report on Form 10-K.

 

**CONSOLIDATEDSTATEMENT OF OPERATIONS DATA:**

 
| ** **                                            | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------|------------|
| **(in  thousands, except per share amounts)**         | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenues:                                             |       |                                       |       |   |   |   |   |   |   |   |   |
| Transaction fees                                      |       | $                                          | 32,940     |   | $ | 28,161 |   | $ | 24,650 |   | $ | 13,987 |   | $ | 23,192 |   |
| Other                                                 |       | 258                                        |       | 340 |   | 365 |   | 673 |   | 939 |   |
| Total revenues                                        |       | 33,198                                     |       | 28,501 |   | 25,015 |   | 14,660 |   | 24,131 |   |
| Operating expenses:                                   |       |                                       |       |   |   |   |   |   |   |   |   |
| Direct marketing                                      |       | 19,567                                     |       | 18,576 |   | 15,207 |   | 8,327 |   | 8,916 |   |
| Sales and marketing                                   |       | 5,246                                      |       | 7,512 |   | 6,770 |   | 5,541 |   | 7,095 |   |
| Technology                                            |       | 3,075                                      |       | 4,459 |   | 5,354 |   | 5,416 |   | 9,014 |   |
| General and administrative                            |       | 4,213                                      |       | 3,799 |   | 4,023 |   | 4,544 |   | 5,883 |   |
| Impairment of long-lived assets (1)                   |       | —                                     |       | — |   | — |   | — |   | 214 |   |
| Lease loss accrual (2)                                |       | (985                                       | )          | — |   | — |   | — |   | — |   |
| Total operating expenses                              |       | 31,116                                     |       | 34,346 |   | 31,354 |   | 23,828 |   | 31,122 |   |
| Income (loss) from operations                         |       | 2,082                                      |       | (5,845 | ) | (6,339 | ) | (9,168 | ) | (6,991 | ) |
| Interest and other income, net (3)                    |       | 384                                        |       | 2,475 |   | 398 |   | 235 |   | 8,037 |   |
| Income (loss) before income taxes                     |       |                                       | 2,466      |   |   | (3,370 | ) |   | (5,941 | ) |   | (8,933 | ) |   | 1,046 |   |
| Provision for income taxes                            |       | 45                                         |       | — |   | — |   | — |   | — |   |
| Income (loss) before income taxes                     |       | $                                          | 2,421      |   | $ | (3,370 | ) | $ | (5,941 | ) | $ | (8,933 | ) | $ | 1,046 |   |
|                                                  |       |                                       |       |   |   |   |   |   |   |   |   |
| Net income (loss) per share:                          |       |                                       |       |   |   |   |   |   |   |   |   |
| Basic                                                 |       | $                                          | 0.55       |   | $ | (0.82 | ) | $ | (1.40 | ) | $ | (1.90 | ) | $ | 0.21 |   |
| Diluted                                               |       | $                                          | 0.46       |   | $ | (0.82 | ) | $ | (1.40 | ) | $ | (1.90 | ) | $ | 0.20 |   |
|                                                  |       |                                       |       |   |   |   |   |   |   |   |   |
| Shares used in computing net income (loss) per share: |       |                                       |       |   |   |   |   |   |   |   |   |
| Basic                                                 |       | 4,387                                      |       | 4,092 |   | 4,234 |   | 4,711 |   | 5,030 |   |
| Diluted                                               |       | 5,295                                      |       | 4,092 |   | 4,234 |   | 4,711 |   | 5,283 |   |

 

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(1)                                 Represents the write-down of long-lived assets related to theacquisition of certain assets of Intuit Insurance Services, Inc.

 

(2)                                 Represents management’s change in estimate of lease loss accrual. SeeNote 5 Notes to Consolidated Financial Statements.

 

(3)                                 In 2003, the Company sold its interest in Finance All K.K. andrecognized a gain of $6.8 million. Also in 2003, InsWeb andeHealthInsurance.com agreed to settle ongoing litigation in the U.S. DistrictCourt for Northern California, and eHealthInsurance agreed to pay InsWeb$800,000 for the services performed by InsWeb prior to the termination of themarketing agreement. In 2002, InsWeb recognized a gain of $10.6 millionfrom the renegotiation and amendment of the obligations under a license anddistribution agreement, which was originally entered into in 2001 in connectionwith the purchase of certain assets of Intuit Insurance Services, Inc.

 

19

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**CONSOLIDATEDBALANCE SHEET DATA:**

 
| ** **                      | ** ** | **As of December 31,** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|
| **(in  thousands)**             | ** ** | **2007**                              | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Cash and cash equivalents       |       | $                                     | 10,777     |   | $ | 6,750 |   | $ | 9,073 |   | $ | 9,334 |   | $ | 15,223 |   |
| Short-term investments          |       | —                                |       | — |   | 1,233 |   | 8,145 |   | 10,868 |   |
| Working capital                 |       | 10,011                                |       | 4,787 |   | 7,271 |   | 14,451 |   | 22,279 |   |
| Total assets                    |       | 14,133                                |       | 10,456 |   | 14,018 |   | 20,475 |   | 29,882 |   |
| Total stockholders’ equity |       | 10,343                                |       | 5,291 |   | 8,141 |   | 15,715 |   | 24,279 |   |
|                                 |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

20

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**Item 7. Management’s Discussion andAnalysis of Financial Condition and Results of Operation.**

 

*ThisAnnual Report on Form 10-K and in particular Management’s Discussion andAnalysis of Financial Condition and Results of Operations contains “forward-lookingstatements” with respect to InsWeb’s future financial performance. The words orphrases “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,”and similar expressions are generally intended to identify forward-lookingstatements. Such forward-looking statements are subject to various known andunknown risks and uncertainties, and InsWeb cautions you that anyforward-looking information provided by, or on behalf of, InsWeb is not aguarantee of future performance. Actual results could differ materially fromthose anticipated in such forward-looking statements due to a number offactors, some of which are beyond InsWeb’s control, including, but not limitedto, uncertain economic conditions which could result in continued decreases inrevenue and reduced participation in InsWeb’s marketplace, anticipated losses,the unpredictability of future revenues, reliance on key customers—property andcasualty insurance carriers- who are themselves subject to volatility in theiroperating cycles, competition, risks associated with system development andoperation risks, uncertainty regarding the costs and revenues associated withnew initiatives, management of potential growth and risks of new businessareas, business combinations, and strategic alliances. These risks anduncertainties, as well as other risks and uncertainties, which are described ingreater detail in “Item 1A. Risk Factors” 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 operates anonline insurance marketplace that enables consumers to comparison shop onlineand to obtain insurance company-sponsored quotes for a variety of insuranceproducts, including automobile, homeowners and term life. InsWeb’s marketplaceelectronically matches consumers and insurance providers. InsWeb has combinedextensive knowledge of the insurance industry, technological expertise andclose relationships with a significant number of insurance companies to developan integrated online marketplace.

 

21

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InsWeb’s principal source of revenues is transaction fees fromparticipating insurance providers, either directly from an insurance company orfrom a local insurance agent. While quotes obtained through InsWeb’s onlineinsurance marketplace are provided to consumers free of charge, InsWeb earnsrevenues from participating insurance companies or agents based on the deliveryof qualified leads. These fees are earned either from an insurance companybased on a closed policy, from the delivery of a lead to a participatinginsurance provider or local agent, or from a commission earned by InsWeb’sinsurance agency subsidiary, InsWeb Insurance Services, Inc. In certaininstances, consumers are provided the opportunity to link directly to athird-party insurance provider’s website. In these situations, the consumerwill complete the third-party company’s online application, and InsWeb will bepaid a fee for that consumer link or click-through.

 

Prior to September 2005,InsWeb’s agent network program was conducted exclusively through anintermediary, NetQuote, Inc. During the year ended December 31, 2007,NetQuote represented 15% of auto transaction fees, compared to 19% and 29%during the years ended December 31, 2006 and 2005, respectively. To lessenInsWeb’s reliance on this intermediary, and to maximize its revenue potential,InsWeb launched a proprietary agent network program (“AgentInsider”) to provideleads directly to local insurance agents who have registered with InsWeb.AgentInsider was launched in September 2005 and complements the offeringof our intermediary. As of December 31,2007, 5,250  local personal linesinsurance agents were actively purchasing consumer leads through AgentInsider,representing 22% of auto and homeowners transaction fees. We expect thatthe agent network program, both through the intermediary and through ourinternally developed network, will continue to represent a significantpercentage of auto transaction fees.

 

InsWebhas focused its efforts on developing insurance company coverage for automobileinsurance in order to be able to offer true comparative online shopping forthis important segment of the insurance market. Automobile insurance accountedfor approximately 84% of our transaction revenues in 2007, approximately 76% in2006 and approximately 79% in 2005. We anticipate that automobile insurancewill continue to account for a substantial portion of our revenues for theforeseeable future.

 

InsWeb has beendependent on a limited number of insurance companies for a majority of itsautomobile insurance transaction fee revenues, although recent expansion ofInsWeb’s offering has reduced that dependency to some extent. Revenues fromNetQuote accounted for approximately 16%, 17% and 27% of InsWeb’s totalrevenues for the years ended December 31, 2007, 2006 and 2005,respectively.

 

InsWeb had an operating income of $2.1 million in2007.  InsWeb  had incurred operating losses of $5.8 millionin 2006 and $6.3 million in 2005, and as of December 31, 2007, ouraccumulated deficit was $189.5 million. In addition, InsWeb’s operating activities to date increased itscash position by $4.0 million in 2007, yet has consumed substantial amounts ofcash, cash equivalents and short-term investments ($3.6 million in 2006 and$5.3 million in 2005) over time, however InsWeb should not require capital inthe near future. At December 31, 2007, InsWeb had $10.8 million in cashand cash equivalents. The losses and the related accumulated deficit are aresult of the significant costs incurred in the development of InsWeb’stechnology platform, the establishment of relationships with insurancecompanies, their integration with the InsWeb site, and InsWeb’s marketing andsales activities. In order toremain competitive, the Company must continue to make investments essential toits ability to operate, and InsWeb intends to continue to invest in productdevelopment and maintenance, and sales and marketing. In addition, the Companywill continue to incur the costs associated with continuing to function as apublicly listed company, including the costs of compliance with the provisionsof the Sarbanes-Oxley Act of 2002, among other things. As a result, InsWeb maynot be able to maintain profitability. In the event that InsWeb is unable to generate revenues sufficient tooffset its costs, or if its costs of marketing and operations are greater thanit anticipates, the Company may be unable to grow its business at the ratedesired or may be required to delay, reduce, or cease certain of itsoperations, any of which could materially harm its business and financialresults. In addition, if InsWeb is unable to sustain profitability, the Companymay need to seek additional financing to continue its business operations. TheCompany cannot be certain that additional financing will be available whenrequired, on favorable terms or at all. If InsWeb is not successful in raisingadditional capital as required, it may delay, significantly reduce or ceasecertain of its operations, which could adversely affect its results of operationsand financial position.

 

**SubsequentEvents**

 

A special meeting ofstockholders was held on February 29, 2008 to consider and approve theInsWeb Corporation 2008 Stock Option Plan (the “Plan”). The purpose of the Planis to advance the interests of InsWeb and its stockholders by providing stockoption grants to attract, retain and reward employees, directors andconsultants and to motivate such persons to contribute to InsWeb’s growth andprofitability. The Plan was approved at the special meeting with 89% of theshares present or represented by proxy voting in favor of adoption.

 

As noted in Item 3, “LegalProceedings”, on March 11, 2008 InsWeb filed a lawsuit against Autobytel,Inc and others. The lawsuits alleges thatthe defendants have infringed InsWeb’s U.S. Patent No. 6,898,597, whichrelates to an event logging system that monitors for the occurrence ofpredefined website usage events.

 

22

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**Results ofOperations**

 

The following table setsforth selected statement of operations data with the respective percentagechange from the prior year:

 
| ** **                    | ** ** | **Year ended December 31,** | ** ** | **Percentage Change   from Prior Year** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                   | ** ** | **2006**                                                    | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues:                     |       |                                       |       |                                                        |       |   |   |   |   |   |   |
|                          |       |                                       |       |                                                        |       |   |   |   |   |   |   |
| Transaction fees:             |       |                                       |       |                                                        |       |   |   |   |   |   |   |
| Auto insurance                |       | $                                          | 27,640     |                                                        | $          | 21,426 |   | $ | 19,556 |   | 29 | % | 10 | % |
| Term life insurance           |       | 3,341                                      |       | 5,108                                                       |       | 4,745 |   | (35 | )% | 8 | % |
| Other insurance offerings     |       | 1,959                                      |       | 1,627                                                       |       | 349 |   | 20 | % | 366 | % |
|                          |       | 32,940                                     |       | 28,161                                                      |       | 24,650 |   | 17 | % | 14 | % |
| Other                         |       | 258                                        |       | 340                                                         |       | 365 |   | (24 | )% | (7 | )% |
| Total revenues                |       | 33,198                                     |       | 28,501                                                      |       | 25,015 |   | 16 | % | 14 | % |
| Operating  expenses:          |       |                                       |       |                                                        |       |   |   |   |   |   |   |
| Direct marketing              |       | 19,567                                     |       | 18,576                                                      |       | 15,207 |   | 5 | % | 22 | % |
| Sales and marketing           |       | 5,246                                      |       | 7,512                                                       |       | 6,770 |   | (30 | )% | 11 | % |
| Technology                    |       | 3,075                                      |       | 4,459                                                       |       | 5,354 |   | (31 | )% | (17 | )% |
| General and administrative    |       | 4,213                                      |       | 3,799                                                       |       | 4,023 |   | 11 | % | (6 | )% |
| Lease loss accrual            |       | (985                                       | )          | —                                                      |       | — |   | n/m |   | n/m |   |
| Total operating expenses      |       | 31,116                                     |       | 34,346                                                      |       | 31,354 |   | (9 | )% | 10 | % |
| Income (loss) from operations |       | $                                          | 2,082      |                                                        | $          | (5,845 | ) | $ | (6,339 | ) | 136 | % | (8 | )% |

 

The following table setsforth selected statement of operations data as a percentage of total revenues:

 
| ** **                    | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues:                     |       |                                       |       |   |   |   |   |
|                          |       |                                       |       |   |   |   |   |
| Transaction fees:             |       |                                       |       |   |   |   |   |
| Auto insurance                |       | 83.2                                       | %          | 75.2 | % | 78.2 | % |
| Term life insurance           |       | 10.1                                       | %          | 17.9 | % | 19.0 | % |
| Other insurance               |       | 5.9                                        | %          | 5.7 | % | 1.3 | % |
| Other                         |       | 0.8                                        | %          | 1.2 | % | 1.5 | % |
| Total revenues                |       | 100.0                                      | %          | 100.0 | % | 100.0 | % |
| Operating expenses:           |       |                                       |       |   |   |   |   |
| Direct marketing              |       | 58.9                                       | %          | 65.2 | % | 60.8 | % |
| Sales and marketing           |       | 15.8                                       | %          | 26.4 | % | 27.1 | % |
| Technology                    |       | 9.3                                        | %          | 15.7 | % | 21.4 | % |
| General and administrative    |       | 12.7                                       | %          | 13.2 | % | 16.0 | % |
| Lease loss accrual            |       | (3.0                                       | )%         | 0 | % | 0 | % |
| Total operating expenses      |       | 93.7                                       | %          | 120.5 | % | 125.3 | % |
| Income (loss) from operations |       | 6.3                                        | %          | (20.5 | )% | (25.3 | )% |

 

23

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**Revenues**

 

Autoinsurance marketplace metrics were as follows:

 
| ** **                                                                       | ** ** | **Year ended December 31,** | ** ** | **Percentage Change   from Prior Year** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------------|------------|
| **(In thousands,**** except per consumer amounts****)** | ** ** | **2007**                                   | ** ** | **2006**                                                    | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Auto insurance transaction  revenues                                             |       | $                                          | 27,640     |                                                        | $          | 21,426 |   | $ | 19,556 |   | 29 | % | 10 | % |
| Number of consumers                                                              |       | 6,045                                      |       | 5,064                                                       |       | 4,846 |   | 19 | % | 4 | % |
| Auto insurance transaction fees per consumer                                     |       | $                                          | 4.57       |                                                        | $          | 4.23 |   | $ | 4.04 |   | 8 | % | 5 | % |

 

Termlife marketplace metrics were as follows:

 
| ** **                                                                                                     | ** ** | **Year ended December 31,** | ** ** | **Percentage Change   from Prior Year** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------------|------------|
| **(In thousands,**** except per consumer and per policy amounts****)** | ** ** | **2007**                                   | ** ** | **2006**                                                    | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Term life insurance  transaction revenues                                                                      |       | $                                          | 3,341      |                                                        | $          | 5,108 |   | $ | 4,745 |   | (35 | )% | 8 | % |
| Number of consumers                                                                                            |       | 105                                        |       | 287                                                         |       | 306 |   | (63 | )% | (6 | )% |
| Term life insurance transaction fees per consumer                                                              |       | $                                          | 31.82      |                                                        | $          | 17.80 |   | $ | 15.51 |   | 79 | % | 15 | % |
| Number of closed term life  policies                                                                           |       | 2,580                                      |       | 5,444                                                       |       | 4,929 |   | (53 | )% | 10 | % |
| Term life insurance transaction fees per closed term life policy                                               |       | $                                          | 1,295      |                                                        | $          | 938 |   | $ | 958 |   | 38 | % | (2 | )% |

 

Definitions:

** **
| “Number of consumers” | Represents consumers acquired from marketing  activities; |
|---------------------------------|-----------------------------------------------------------|

 

***TransactionFees******.*** Automobile insurance transaction fees(consisting of lead fees, commissions and Sponsored Web Link fees) increased to$27.6 million in 2007 from $21.4 million in 2006. The 29% increase intransaction fees was attributable to a 19% increase in the number of consumersshopping for automobile insurance on the InsWeb platform in 2007 compared to2006, and an 8% increase in the revenue earned per consumer in 2007 compared to2006. Automobile insurance transaction fees increased to $21.4 million in2006 from $19.6 million in 2005. The 10% increase in transaction fees wasattributable to a 4% increase in the number of consumers shopping forautomobile insurance on the InsWeb platform in 2006 compared to 2005 and a 5%increase in the revenue earned per consumer in 2006 compared to 2005.

 

24

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Termlife insurance transaction fees (consisting primarily of agency commissions and alimited amount of lead fees) decreased 35%to $3.3 million in 2007 from $5.1 million in 2006.The decreasein term life revenues resulted from the reduction in sales of new term lifeinsurance policies following our decision in April 2007 to wind-down ourterm life agency in order to focus on more profitable lead generationopportunities. We will continue to offer term life insurance products to ourconsumers through our online insurance marketplace using a lead generationmodel. Term life insurance transaction fees increased 8% to $5.1 million in 2006 from$4.7 million in 2005. The increase in revenues was attributable tothe 10% increase in the number of closed term life policies. Revenue per term life consumer increased to $17.80in 2006, compared to $15.51 in 2005.

 

Otherinsurance transaction fees (consisting primarily of homeowners insurance lead fees) increased 20% to $2.0 million in 2007 from$1.6 million in 2006. The increase in transaction fees wasattributable to a 67% increase in the number of consumers shopping forhomeowner insurance on the InsWeb platform in 2007 compared to 2006, partiallyoffset by a 28% decrease in the revenue earned per consumer in 2007 compared to2006. Other insurance transaction fees (consistingprimarily of homeowners insurance lead fees) increased366% to $1.6 million in 2006 from $0.3 million in 2005. Theincrease in revenues was attributable to the launch of our local agent networkprogram, AgentInsider, and the related marketing efforts to drive homeowners’insurance consumers to the InsWeb marketplace.

 

***Other.*** Development andmaintenance fees accounted for $0.3 million, or 0.8% of total revenues in2007, compared to $0.3 million, or 1.2%, of total revenues in 2006, and$0.4 million, or 1.5%, in 2005.

 

**Operating Expenses**

 
| ** **                                                    | ** ** | **Year ended December 31,** | ** ** | **Percentage Change   from Prior Year** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------------|------------|
| **(In thousands,**** except percentages****)** | ** ** | **2007**                                   | ** ** | **2006**                                                    | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Operating expenses:                                           |       |                                       |       |                                                        |       |   |   |   |   |   |   |
|                                                          |       |                                       |       |                                                        |       |   |   |   |   |   |   |   |   |   |
| Direct marketing                                              |       | $                                          | 19,567     |                                                        | $          | 18,576 |   | $ | 15,207 |   | 5 | % | 22 | % |
| Sales and marketing                                           |       | 5,246                                      |       | 7,512                                                       |       | 6,770 |   | (30 | )% | 11 | % |
| Technology                                                    |       | 3,075                                      |       | 4,459                                                       |       | 5,354 |   | (31 | )% | (17 | )% |
| General and administrative                                    |       | 4,213                                      |       | 3,799                                                       |       | 4,023 |   | (11 | )% | (6 | )% |
| Lease loss accrual                                            |       | (985                                       | )          | —                                                      |       | — |   | n/m |   | n/m |   |

 

Directmarketing (consumer acquisition) metrics and costs were as follows:

 
| ** **                                                                                                 | ** ** | **Year ended December 31,** | ** ** | **Percentage Change   from Prior Year** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------------|------------|
| **(In thousands,**** except percentages and per consumer amounts****)** | ** ** | **2007**                                   | ** ** | **2006**                                                    | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Direct marketing costs                                                                                     |       | $                                          | 19,567     |                                                        | $          | 18,576 |   | $ | 15,207 |   | 5 | % | 22 | % |
| Direct marketing costs as a percent of transaction fees                                                    |       | 59                                         | %          | 66                                                          | %          | 62 | % | (11 | )% | 6 | % |
| Number of consumers                                                                                        |       | 6,578                                      |       | 5,609                                                       |       | 5,267 |   | 17 | % | 6 | % |
| Direct marketing cost per consumer                                                                         |       | $                                          | 2.97       |                                                        | $          | 3.31 |   | $ | 2.89 |   | (10 | )% | 15 | % |
| Transaction fees per consumer                                                                              |       | $                                          | 5.01       |                                                        | $          | 5.02 |   | $ | 4.68 |   | 0 | % | 7 | % |

 

***Direct Marketing.*** Direct marketingexpenses consist of advertising, promotions and fees paid to online companiesto drive consumer traffic to the InsWeb online marketplace. InsWeb’s marketing strategy is designed to increase consumer traffic toits website and to drive awareness of its insurance products and services. TheCompany employs various means of advertising, which consist primarily of onlineadvertising, sponsored search, portal advertising, e-mail campaigns andstrategic partnerships with high-profile online companies that can drivesignificant traffic to the InsWeb site. Fees related to the Company’s onlinemarketing are expensed in the period the related consumer click-through occursor in some cases, when the consumer leads are generated. Direct marketingexpenses increased 5% to $19.6 million in 2007, compared to$18.6 million in 2006. This increase in spending resulted in a 17%increase in consumer traffic and a decrease of 10% in direct marketing cost perconsumer, compared to 2006 levels. Direct marketing expense as a percent oftransaction revenues was 59% in 2007, compared to 66% in 2006. Direct marketingexpenses increased 22% to $18.6 million in 2006, compared to$15.2 million in 2005. This increase in spending resulted in a 6% increasein consumer traffic, compared to 2005 levels. Direct marketing expense as apercent of transaction revenues was 66% in 2006, compared to 62% in 2005.

 

***Sales and Marketing.*** Sales and marketingexpenses consist primarily of payroll and related expenses, including employeebenefits, facility costs, telecommunications and systems costs, for InsWeb’ssales and marketing personnel. Sales and marketing expenses decreased to$5.2 million in 2007 from $7.5 million in 2006, a 30% decrease. Thisdecrease was a result of the closure of our term life agency in April of2007 and the elimination of related sales and customer support costs. Sales andmarketing expenses increased to 

 

25

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$7.5 millionin 2006 from $6.8 million in 2005, an 11% increase. This increase was aresult of the expansion of the term life agency and the launch of theAgentInsider program and related increases in sales, customer support and agentmarketing costs.

 

***Technology.*** Technology expensesconsist primarily of payroll and related expenses, including employee benefits,facility and systems costs, for product and site development personnel involvedwith support and maintenance of the InsWeb online insurance marketplace.Technology expenses decreased to $3.1 million in 2007 from $4.4 million in2006 and$5.4 million in 2005. This decrease was primarily due to initiativescompleted in September 2006 to reduce headcount due to the conclusion ofvarious major technology initiatives.

 

***Generaland Administrative.*** General and administrative expenses consistprimarily of payroll and related expenses, including employee benefits,facility costs, telecommunications and systems costs, for InsWeb’s generalmanagement, administrative and accounting personnel, as well as other generalcorporate expenses. General and administrative expenses increased to$4.2 million in 2007 from $3.8 million in 2006. The increasewasprimarily due to reductions in headcount and related severance costs.General and administrative expenses decreased to $3.8 million in 2006 from$4.0 million in 2005. The decreases were primarily due to reductions inheadcount.

 

***Lease Loss Accrual.*** The lease loss accrual of $1.0 million for 2007 representsmanagement’s changein estimate for formerly occupied facilities.

 

***Interest andOther Income, Net.***Interest and other income for 2007 was$0.4 million compared to $2.5 million in 2006. Included in other income for2006 was $2.0 million representing the gain recorded in connection with thesale of InsWeb Insurance Services’ property and casualty agency book ofbusiness. This transaction closed on April 28, 2006.Interest incomerepresents income earned on InsWeb’s short-term investments. Interest and otherincome for 2006 was $2.5 million compared to $0.4 million in 2005.

 

***Income Taxes.***Effective January 1,2007 the Company adopted the provisions of FASB Interpretation No. 48, “*Accounting for Uncertainty in Income Taxes – an interpretation of FASBStatement No. 109”* (“FIN 48”) prescribes a recognitionthreshold and a measurement attribute for the financial statement recognitionand measurement of tax positions taken or expected to be taken in a tax return.For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There was not amaterial impact on the Company’s financial position and results of operationsas a result of the adoption of the provisions of FIN 48. At January 1,2007 and December 31, 2007, the Company had unrecognized tax benefits ofapproximately $0.3  million  and $0.3 million, respectively (none of which, if recognized, wouldfavorably affect the Company’s effective tax rate). The Company does notbelieve there will be any material changes in its unrecognized tax positionsover the next twelve months.

 

A reconciliation of thebeginning and ending amount of unrecognized tax benefits is as follows (inthousands):

 
| Balance at January 1, 2007                              |   | $      | 300    |   |
|--------------------------------------------------------------|--------|--------|--------|--------|
| Increases (decrease) related to prior year tax positions     |   | — |   |
| Increases related to current year tax positions              |   | — |   |
| Settlements                                                  |   | — |   |
| Reductions due to lapse of applicable statute of limitations |   | — |   |
| Balance at December 31, 2007                            |   | $      | 300    |   |

 

Interestand penalty costs related to unrecognized tax benefits, if any, are classifiedas a component of interest income and other income (expense), net in theaccompanying Statements of Operations. The Company, however, did not recognizeany interest and penalty expense related to unrecognized tax benefits for theyear ended December 31, 2007.

 

The Company files incometax returns in the U.S. federal jurisdiction and various state jurisdictions.The Company is subject to U.S. federal and state examination for the calendartax years ending 1996 through 2007.

 

26

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**CriticalAccounting Policies**

 

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

 

**Accrualfor Lease Obligations.**  InsWeb iscontractually obligated to make future lease payments on certain formerlyoccupied facilities through September 2008. As of December 31, 2007,total future obligations for these facilities amounted to $1.9 million; theseobligations are offset by total contractual future sublease income ofapproximately $1.6 million. In connection with its lease obligations forformerly occupied facilities, InsWeb must make assumptions regarding thepotential future sublease income relative to these facilities. These estimatesand assumptions are affected by area-specific conditions such as new commercialdevelopment, market occupancy rates and future market prices. Based on theseassumptions, the Company maintains an accrual for formerly occupied facilities.The remaining accrual for lease obligations of formerly occupied facilities was$0.2million at December 31, 2007. Ifthese estimates or their related assumptions change in the future, InsWeb maybe required to record a charge to increase its existing accrual.

 

**Contingencies.** As discussed in Part I,Item 3 (“Legal Proceedings”) and in Part II, Note 5 of Notes toConsolidated Financial Statements of this report, InsWeb is a defendant in: i)a class action lawsuit has been filed that alleges InsWeb violated certainfederal securities laws at the time of its initial public offering; ii) asecurities lawsuit alleging certain officers and directors and significantshareholders violated the short swing trading prohibition of Section 16(b) ofthe Securities Exchange Act; and iii) a patent infringement lawsuit in theEastern district of Texas. InsWeb cannot accurately predict the ultimateoutcome of these matters at this time and therefore, cannot estimate the rangeof probable loss, if any, due to the inherent uncertainties of litigation.InsWeb believes it has meritorious defenses; however InsWeb cannot assure thatit will prevail in any of these actions. An unfavorable outcome could have amaterial adverse effect on InsWeb’s financial condition, results of operationsand cash flows.

 

**Share-BasedCompensation.**InsWebaccounts for share-based compensation in accordance with Statement of FinancialAccounting Standards No. 123(R), *Share-Based Payment*.Under the provisions of Statement 123(R), share-based compensation cost isgenerally estimated at the grant date based on the award’s fair value ascalculated by the Black-Scholes-Merton (BSM) option-pricing model and isrecognized as expense over the requisite service period. The BSM model requiresvarious highly judgmental assumptions including expected option life,volatility, and forfeiture rates. If any of the assumptions used in the BSMmodel change significantly, share-based compensation expense may differmaterially in the future from that recorded in the current period.

 

**Income Taxes. **InsWeb accounts for income taxes in accordance withStatement of Financial Accounting Standards No. 109, *Accounting for Income Taxes*. The deferredtax assets and/or liabilities are determined by multiplying the differencesbetween the financial reporting and tax reporting bases for assets andliabilities by the enacted tax rates expected to be in effect when suchdifferences are recovered or settled.

 

The carrying value of our deferred tax assets, which was approximately$73 million at December 31, 2007, is dependent upon our ability togenerate sufficient future taxable income. We have established a full valuationallowance against our net deferred tax assets to reflect the uncertainty of realizingthe deferred tax benefits, given historical losses. A valuation allowance isrequired when it is more likely than not that all or a portion of a deferredtax asset will not be realized. This assessment requires a review andconsideration of all available positive and negative evidence, including ourpast and future performance, the market environment in which we operate, theutilization of tax attributes in the past, and the length of carryforwardperiods and evaluation of potential tax planning strategies. We expect tocontinue to maintain a full valuation allowance until an appropriate level ofprofitability is sustained or we are able to develop tax strategies that wouldenable us to conclude that it is more likely than not that a portion of our deferredtax assets would be realizable.

 

27

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**Liquidity andCapital Resources**

 

Summarized cash flowinformation is as follows (in thousands):

 
| ** **                                      | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Cash provided by (used in) operating activities |       | $                                          | 2,530      |   | $ | (3,560 | ) | $ | (5,342 | ) |
| Cash (used in) provided by investing activities |       | (20                                        | )          | 1,159 |   | 6,791 |   |
| Cash provided by (used in) financing activities |       | 1,517                                      |       | 78 |   | (1,710 | ) |
|                                                 |            |                                            |            |  |  |  |  |  |  |  |

 

At December 31,2007, InsWeb’s principal source of liquidity was $10.8 million in cash andcash equivalents. Since inception, InsWeb has financed its operations primarilythrough the sale of preferred and common stock.

 

In 2007, net cashprovided by operating activities primarily consisted of InsWeb’s income fromoperations and noncash share-based compensation of $1.1 million anddepreciation of property and equipment of $0.2 million. This was offset byreductions in the lease loss accrual of $1.0 million and accounts payable andaccrued expenses of $0.4 million. In 2006, net cash used in operatingactivities primarily consisted of InsWeb’s net loss, partially offset bynoncash share-based compensation of $0.4 million and depreciation of propertyand equipment of $0.2 million. An increase in accounts receivable andreductions in accounts payable and accrued expenses also contributed to cashused by operations. In 2005, net cash used in operating activities primarilyconsisted of InsWeb’s net loss, partially offset by noncash depreciation andamortization of $0.5 million. Cash used in operations in 2005 was alsoaffected by increases in accounts receivable and accrued expenses, partiallyoffset by an increase in accounts payable.

 

Net cash used ininvesting activities in 2007 resulted from the purchase of property andequipment. Net cash provided by investing activities in 2006 and 2005 resultedprimarily from redemptions of short-term investments of $1.5 million andnet maturities of short-term investments of $6.9 million, respectively.

 

Net cash provided byfinancing activities in 2007 and 2006 resulted primarily from the proceeds fromthe issuance of common stock through employee stock plans. Net cash used infinancing activities in 2005 resulted primarily from the repurchase of commonstock for $1.7 million.

 

InsWeb leases itscurrent office facilities under non-cancelable operating leases, which expireat various dates through April 2011, including a 10-year lease agreementthrough 2011 for office space in the Sacramento area which houses its corporateheadquarters. InsWeb has options to extend the lease at the end of the leaseterm, and has the right of first refusal on other office space in the complex.In addition, InsWeb has entered into various sublease arrangements associatedwith previously exited facilities that have terms extending through September 2008.

 

Aggregate contractual cash obligations, netof contractual sublease income, as of December 31, 2007 is summarized asfollows (in thousands):

 
| **Years ending December 31,** | ** ** | **Gross lease   commitments** | ** ** | **Sublease   income** | ** ** | **Net lease   commitment** | ** ** |
|----------------------------------------------|------------|-----------------------------------------|------------|----------------------------|------------|--------------------------------------|------------|
| 2008                                         |       | $                                       | 2,936      |                       | $          | (1,801                               | )          | $ | 1,135 |   |
| 2009                                         |       | 1,078                                   |       | (191                       | )          | 887                                  |       |
| 2010                                         |       | 1,078                                   |       | (197                       | )          | 881                                  |       |
| 2011                                         |       | 359                                     |       | (33                        | )          | 326                                  |       |
| Thereafter                                   |       | —                                  |       | —                     |       | —                               |       |
|                                         |       | $                                       | 5,451      |                       | $          | (2,222                               | )          | $ | 3,229 |   |

 

28

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InsWeb subleasesportions of the property InsWeb formerly occupied as its headquarters inRedwood City. Under the terms of the sublease, as amended, the sublessee isobligated to rent the entire facility for the duration of InsWeb’s lease (throughSeptember 2008) and to pay all rent and operating expenses otherwisepayable by InsWeb directly to the landlord. Therefore, the sublease results ina reduction in InsWeb’s contractual lease commitments by $1.5 million,through the remainder of the lease. In connection with its lease obligationsfor formerly occupied facilities, InsWeb must make assumptions regarding thepotential future sublease income relative to these facilities. These estimatesand assumptions are affected by area-specific conditions such as new commercialdevelopment, market occupancy rates and future market prices. If theseestimates or their related assumptions change in the future, InsWeb may berequired to record a charge to increase its existing accrual.

 

InsWeb currently anticipatesthat its cash and cash equivalents will be sufficient to meet its anticipatedcash needs for working capital and capital expenditures for at least the next12 months. Although InsWeb does not anticipate the need for additionalfinancing, InsWeb nevertheless may require additional funds to meet operatingneeds, or to expand its business internally or through acquisition. InsWebcannot be certain that additional financing will be available when required, onfavorable terms or at all. If InsWeb is not successful in raising additionalcapital as required, its business could be materially harmed. If additionalfunds were raised through the issuance of equity securities, the percentageownership of InsWeb’s then-current stockholders would be reduced.

 

**Recently Issued AccountingStandards**

 

In September 2006,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards No. 157, *FairValue Measurements*(“Statement157”).Statement 157 does not require any new fair value measurements butclarifies the fair value definition, establishes a fair value hierarchy thatprioritizes the information used to develop assumptions used for measuring fairvalue, and expands disclosures about fair value measurements. Statement 157clarifies that fair value is the exchange price in an orderly transactionbetween market participants to sell the asset or transfer the liability in themarket. The fair value hierarchy gives the highest priority to quoted prices inactive markets and the lowest priority to unobservable data, for example, thereporting entity’s own data. It emphasizes that fair value is a market-basedmeasurement, not an entity-specific measurement, and a fair value measurementshould therefore be based on the assumptions that market participants would usein pricing the asset or liability. Statement 157 expands disclosures about theuse of fair value to measure assets and liabilities in interim and annualperiods subsequent to initial recognition, including the inputs used to measurefair value and the effect 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. We adopted Statement 157 atthe beginning of 2008. There has been no material impact to our financialstatements 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*(“Statement 159”).Statement 159allows entities to voluntarily choose to measure many financial assets andfinancial liabilities as well as certain nonfinancial instruments that aresimilar to financial instruments (collectively, eligible items) at fair value(the fair value option). The election is made on an instrument-by-instrumentbasis and is irrevocable. If the fair value option is elected for aninstrument, Statement 159 specifies that all subsequent changes in fair valuefor that instrument shall be reported in earnings and is effective as of thebeginning of an entity’s first fiscal year that begins after November 15,2007. Upon initial adoption, Statement 159 provides entities with a one-timechance to elect the fair value option for eligible items. The effect of thefirst measurement to fair value should be reported as a cumulative-effectadjustment to the opening balance of retained earnings in the year thestatement is adopted. We adopted SFAS 159 at the beginning of 2008 and did notmake any elections for fair value accounting. Therefore, we did not record acumulative-effect adjustment to our opening retained earnings balance.

 

29

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**Item 7A.Quantitative and Qualitative Disclosures About Market Risk.**

 

Theprimary objective of our investment strategy is to preserve principal whilemaximizing the income we receive from investments without significantlyincreasing risk. To minimize this risk, as of December 31, 2007, we havemaintained our portfolio of cash equivalents in short-term and overnightinvestments that are subject to minimal market risk, as the interest paid on suchinvestments fluctuates with the prevailing interest rates. As of December 31,2007, all of our cash equivalents mature in less than three months.

 

**Item 8.Financial Statements and Supplementary Data.**

 

The Report ofIndependent Registered Public Accounting Firm, Consolidated FinancialStatements and Notes to Consolidated Financial Statements follow below on pagesF-1 to F-20.

 

30

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**INSWEB CORPORATION**

 

**INDEX TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| Report of  Independent Registered Public Accounting Firm                                                         |   | F-2    |
|------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                             |   |   |
| Consolidated Balance  Sheets as of December 31, 2007 and 2006                                               |   | F-3    |
|                                                                                                             |   |   |
| Consolidated  Statements of Operations for the years ended December 31, 2007, 2006 and  2005                |   | F-4    |
|                                                                                                             |   |   |
| Consolidated  Statements of Stockholders’ Equity for the years ended December 31,  2007, 2006 and 2005 |   | F-5    |
|                                                                                                             |   |   |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2007, 2006 and  2005                |   | F-6    |
|                                                                                                             |   |   |
| Notes to  Consolidated Financial Statements                                                                      |   | F-7    |

 

F-1

----

 

**Report of Independent Registered PublicAccounting Firm**

 

**TheBoard of Directors and Stockholders of InsWeb Corporation**

 

We haveaudited the accompanying consolidated balance sheets of InsWeb Corporation asof December 31, 2007 and 2006, and the related consolidated statements ofoperations, stockholders’ equity, and cash flows for each of the three years inthe period ended December 31, 2007. Our audits also included the financialstatement schedule listed in the Index at Item 15(a)(2). These financial statementsand schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedule based on our audits.

 

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting.Our audit included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.Accordingly we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

In ouropinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of InsWeb Corporation atDecember 31, 2007 and 2006, and the consolidated results of its operationsand its cash flows for each of the three years in the period ended December 31,2007, in conformity with U.S. generally accepted accounting principles. Also,in our opinion, the related financial statement schedule, when considered inrelation to the basic financial statements taken as a whole, presents fairly inall material respects the information set forth therein.

 

Asdiscussed in Note 3 to the consolidated financial statements, in 2006, theCompany changed its method of accounting for share-based payments in accordancewith the guidance provided in Statement of Financial Accounting Standards No. 123(revised 2004), “Share Based Payment.”

 

 

/s/ERNST & YOUNG LLP

 

 

Sacramento,California

March 31, 2008

 

F-2

----

 

**INSWEB CORPORATION**

**CONSOLIDATED BALANCESHEETS**

***(Amounts in thousands, except per shareamounts)***

 
| ** **                                                                                                                                                                   | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **2007**              | ** ** | **2006** | ** ** |
| **Assets**                                                                                                                                                                   |       |                  |       |   |   |
| Current assets:                                                                                                                                                              |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                                                    |       | $                     | 10,777     |   | $ | 6,750 |   |
| Accounts receivable, net of allowances of  $36 at 2007 and $12 at 2006                                                                                                       |       | 2,428                 |       | 2,804 |   |
| Prepaid expenses and other current assets  (including related party receivable of $48 at 2007 and $0 at 2006)                                                                |       | 596                   |       | 398 |   |
| Total current assets                                                                                                                                                         |       | 13,801                |       | 9,952 |   |
| Property and equipment                                                                                                                                                       |       | 257                   |       | 389 |   |
| Other assets                                                                                                                                                                 |       | 75                    |       | 115 |   |
| Total assets                                                                                                                                                                 |       | $                     | 14,133     |   | $ | 10,456 |   |
|                                                                                                                                                                         |       |                  |       |   |   |
| **Liabilities and stockholders’ equity**                                                                                                                                |       |                  |       |   |   |
| Current liabilities:                                                                                                                                                         |       |                  |       |   |   |
| Accounts payable                                                                                                                                                             |       | $                     | 2,118      |   | $ | 2,248 |   |
| Accrued expenses                                                                                                                                                             |       | 1,426                 |       | 2,672 |   |
| Deferred revenue                                                                                                                                                             |       | 246                   |       | 245 |   |
| Total current liabilities                                                                                                                                                    |       | 3,790                 |       | 5,165 |   |
| Commitments and contingencies                                                                                                                                                |       |                  |       |   |   |
| Stockholders’ equity:                                                                                                                                                   |       |                  |       |   |   |
| Convertible preferred stock, $0.001 par  value. Authorized: 5,000 shares; no shares issued or outstanding at 2007 and  2006                                                  |       | —                |       | — |   |
| Common stock, $0.001 par value. Authorized:  25,000 shares; 7,807 shares issued and 4,583 shares outstanding at 2007; and  7,338 shares issued and 4,114 outstanding at 2006 |       | 8                     |       | 7 |   |
| Paid-in capital                                                                                                                                                              |       | 206,208               |       | 203,578 |   |
| Treasury stock, 3,224 shares at 2007 and  2006                                                                                                                               |       | (6,334                | )          | (6,334 | ) |
| Accumulated other comprehensive loss                                                                                                                                         |       | —                |       | — |   |
| Accumulated deficit                                                                                                                                                          |       | (189,539              | )          | (191,960 | ) |
| Total stockholders’ equity                                                                                                                                              |       | 10,343                |       | 5,291 |   |
| Total liabilities and stockholders’ equity                                                                                                                              |       | $                     | 14,133     |   | $ | 10,456 |   |

 

See accompanying notes.

 

F-3

----

 

**INSWEB CORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

***(Amounts in thousands, except per shareamounts)***

 
| ** **                                             | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                             | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                   |       |                                        |       |   |   |   |   |
| Revenues:                                              |       |                                        |       |   |   |   |   |
| Transaction fees                                       |       | $                                           | 32,940     |   | $ | 28,161 |   | $ | 24,650 |   |
| Other                                                  |       | 258                                         |       | 340 |   | 365 |   |
| Total revenues                                         |       | 33,198                                      |       | 28,501 |   | 25,015 |   |
| Operating expenses:                                    |       |                                        |       |   |   |   |   |
| Direct marketing                                       |       | 19,567                                      |       | 18,576 |   | 15,207 |   |
| Sales and marketing                                    |       | 5,246                                       |       | 7,512 |   | 6,770 |   |
| Technology                                             |       | 3,075                                       |       | 4,459 |   | 5,354 |   |
| General and administrative                             |       | 4,213                                       |       | 3,799 |   | 4,023 |   |
| Lease loss accrual                                     |       | (985                                        | )          | — |   | — |   |
| Total operating expenses                               |       | 31,116                                      |       | 34,346 |   | 31,354 |   |
| Income (loss) from operations                          |       | 2,082                                       |       | (5,845 | ) | (6,339 | ) |
| Interest income                                        |       | 378                                         |       | 425 |   | 398 |   |
| Other income, net                                      |       | 6                                           |       | 2,050 |   | — |   |
| Income (loss) before income taxes                      |       | 2,466                                       |       | (3,370 | ) | (5,941 | ) |
| Provision for income taxes                             |       | 45                                          |       | — |   | — |   |
| Net income (loss)                                      |       | $                                           | 2,421      |   | $ | (3,370 | ) | $ | (5,941 | ) |
|                                                   |       |                                        |       |   |   |   |   |
| Net income (loss) per share:                           |       |                                        |       |   |   |   |   |
| Basic                                                  |       | $                                           | 0.55       |   | $ | (0.82 | ) | $ | (1.40 | ) |
|                                                   |       |                                        |       |   |   |   |   |
| Diluted                                                |       | $                                           | 0.46       |   | $ | (0.82 | ) | $ | (1.40 | ) |
|                                                   |       |                                        |       |   |   |   |   |
| Shares used in computing net income (loss)  per share: |       |                                        |       |   |   |   |   |
| Basic                                                  |       | 4,387                                       |       | 4,092 |   | 4,234 |   |
| Diluted                                                |       | 5,295                                       |       | 4,092 |   | 4,234 |   |

 

See accompanying notes.

 

F-4

----

** **

**INSWEB CORPORATION**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY**

**Years ended December 31, 2007, 2006 and2005**

***(Amounts in thousands, except per shareamounts)***

*** ***
| ** **                                                                     | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Treasury Stock** | ** ** | **Accumulated Other** | ** ** | **Accumulated** | ** ** | ** **                  | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|-------------------------|------------|----------------------------|------------|-----------------|------------|-----------------------------|------------|
| ** **                                                                     | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**             | ** ** | **Shares**                 | ** ** | **Amount**      | ** ** | **Comprehensive Loss** | ** ** | **Deficit** | ** ** | **Total** | ** ** |
| ** **                                                                     | ** ** | ** **            | ** ** | ** **  | ** ** | ** **              | ** ** | ** **                 | ** ** | ** **      | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balances,  December 31, 2004                                              |       | 7,257                 |       | $           | 7          |                    | $          | 202,961                    |       | (2,468          | )          | $                           | (4,596     | ) | $ | (8 | ) | $ | (182,649 | ) | $ | 15,715 |   |
| Issuance of  shares through employee stock purchase plan and stock option plan |       | 44                    |       | —      |       | 98                      |       | —                     |       | —          |       | —                      |       | — |   | 98 |   |
| Shares  repurchased                                                            |       | —                |       | —      |       | —                  |       | (756                       | )          | (1,738          | )          | —                      |       | — |   | (1,738 | ) |
| Comprehensive  loss:                                                           |       |                  |       |        |       |                    |       |                       |       |            |       |                        |       |   |   |   |   |
| Change in  unrealized gain on investments                                      |       | —                |       | —      |       | —                  |       | —                     |       | —          |       | 7                           |       | — |   | 7 |   |
| Net loss                                                                       |       | —                |       | —      |       | —                  |       | —                     |       | —          |       | —                      |       | (5,941 | ) | (5,941 | ) |
| Comprehensive  loss                                                            |       | —                |       | —      |       | —                  |       | —                     |       | —          |       | —                      |       | — |   | (5,934 | ) |
|                                                                           |       |                  |       |        |       |                    |       |                       |       |            |       |                        |       |   |   |   |   |
| Balances,  December 31, 2005                                              |       | 7,301                 |       | 7           |       | 203,059                 |       | (3,224                     | )          | (6,334          | )          | (1                          | )          | (188,590 | ) | 8,141 |   |
| Issuance of  shares through employee stock purchase plan and stock option plan |       | 37                    |       | —      |       | 88                      |       | —                     |       | —          |       | —                      |       | — |   | 88 |   |
| Share-based  compensation expense                                              |       | —                |       | —      |       | 431                     |       | —                     |       | —          |       | —                      |       | — |   | 431 |   |
| Comprehensive  loss:                                                           |       |                  |       |        |       |                    |       |                       |       |            |       |                        |       |   |   |   |   |
| Change in  unrealized gain on investments                                      |       | —                |       | —      |       | —                  |       | —                     |       | —          |       | 1                           |       | — |   | 1 |   |
| Net loss                                                                       |       | —                |       | —      |       | —                  |       | —                     |       | —          |       | —                      |       | (3,370 | ) | (3,370 | ) |
| Comprehensive  loss                                                            |       | —                |       | —      |       | —                  |       | —                     |       | —          |       | —                      |       | — |   | (3,369 | ) |
|                                                                           |       |                  |       |        |       |                    |       |                       |       |            |       |                        |       |   |   |   |   |
| Balances,  December 31, 2006                                              |       | 7,338                 |       | 7           |       | 203,578                 |       | (3,224                     | )          | (6,334          | )          | —                      |       | (191,960 | ) | 5,291 |   |
| Issuance of  shares through employee stock purchase plan and stock option plan |       | 469                   |       | 1           |       | 1,516                   |       | —                     |       | —          |       | —                      |       | — |   | 1,517 |   |
| Share-based  compensation expense                                              |       | —                |       | —      |       | 1,114                   |       | —                     |       | —          |       | —                      |       | — |   | 1,114 |   |
| Comprehensive  income:                                                         |       |                  |       |        |       |                    |       |                       |       |            |       |                        |       |   |   |   |   |
| Net income                                                                     |       | —                |       | —      |       | —                  |       | —                     |       | —          |       | —                      |       | 2,421 |   | 2,421 |   |
| Comprehensive  income                                                          |       | —                |       | —      |       | —                  |       | —                     |       | —          |       | —                      |       | — |   | 2,421 |   |
|                                                                           |       |                  |       |        |       |                    |       |                       |       |            |       |                        |       |   |   |   |   |
| Balances,  December 31, 2007                                              |       | 7,807                 |       | $           | 8          |                    | $          | 206,208                    |       | (3,224          | )          | $                           | (6,334     | ) | $ | — |   | $ | (189,539 | ) | $ | 10,343 |   |

 

See accompanying notes.

 

F-5

----

** **

**INSWEB CORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**INCREASE (DECREASE) IN CASH AND CASHEQUIVALENTS**

***(Amounts in thousands)***

 
| ** **                                                                            | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                            | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| Cash flows from operating activities:                                                 |       |                                        |       |   |   |   |   |
| Net income (loss)                                                                     |       | $                                           | 2,421      |   | $ | (3,370 | ) | $ | (5,941 | ) |
| Adjustments to reconcile net income (loss)  to net cash used in operating activities: |       |                                        |       |   |   |   |   |
| Lease loss accrual                                                                    |       | (985                                        | )          | — |   | — |   |
| Share-based compensation                                                              |       | 1,114                                       |       | 431 |   | — |   |
| Depreciation and amortization                                                         |       | 152                                         |       | 210 |   | 534 |   |
| Net changes in operating assets and  liabilities:                                     |       |                                        |       |   |   |   |   |
| Accounts receivable                                                                   |       | 376                                         |       | (507 | ) | (1,272 | ) |
| Prepaid expenses and other current assets                                             |       | (198                                        | )          | 147 |   | 162 |   |
| Other assets                                                                          |       | 40                                          |       | 231 |   | (12 | ) |
| Accounts payable                                                                      |       | (130                                        | )          | (407 | ) | 1,407 |   |
| Accrued expenses                                                                      |       | (261                                        | )          | (412 | ) | (292 | ) |
| Deferred revenue                                                                      |       | 1                                           |       | 117 |   | 72 |   |
| Net cash provided by (used in) operating  activities                                  |       | 2,530                                       |       | (3,560 | ) | (5,342 | ) |
| Cash flows from investing activities:                                                 |       |                                        |       |   |   |   |   |
| Redemptions of short-term investments                                                 |       | —                                      |       | 1,462 |   | 13,718 |   |
| Purchases of short-term investments                                                   |       | —                                      |       | (228 | ) | (6,799 | ) |
| Purchases of property and equipment                                                   |       | (20                                         | )          | (75 | ) | (128 | ) |
| Net cash (used in) provided by investing  activities                                  |       | (20                                         | )          | 1,159 |   | 6,791 |   |
| Cash flows from financing activities:                                                 |       |                                        |       |   |   |   |   |
| Proceeds from issuance of common stock  through stock plans                           |       | 1,517                                       |       | 88 |   | 98 |   |
| Repurchases of common stock                                                           |       | —                                      |       | — |   | (1,738 | ) |
| Repayment of debt                                                                     |       | —                                      |       | (10 | ) | (70 | ) |
| Net cash provided by (used in) financing  activities                                  |       | 1,517                                       |       | 78 |   | (1,710 | ) |
| Net increase (decrease) in cash and cash  equivalents                                 |       | 4,027                                       |       | (2,323 | ) | (261 | ) |
| Cash and cash equivalents, beginning of  year                                         |       | 6,750                                       |       | 9,073 |   | 9,334 |   |
| Cash and cash equivalents, end of year                                                |       | $                                           | 10,777     |   | $ | 6,750 |   | $ | 9,073 |   |

 

See accompanying notes.

 

F-6

----

 

**INSWEB CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****                                    Business of InsWeb**

 

InsWebCorporation operates an online insurance marketplace that enables consumers tocomparison shop online and to obtain insurance company-sponsored quotes for avariety of insurance products, including automobile, homeowners and term life.InsWeb’s marketplace electronically matches consumers and insurance providers.InsWeb’s marketplace enables consumers to research insurance-related topics,search for, analyze and compare insurance products, apply for and to receiveinsurance company-sponsored quotes for coverage for automobile, homeowners andterm life insurance.

 

InsWeb’s principal source of revenues istransaction fees from participating insurance providers, either directly froman insurance company or from a local insurance agent. While quotes obtainedthrough InsWeb’s online insurance marketplace are provided to consumers free ofcharge, InsWeb earns revenues from participating insurance companies or agentsbased on the delivery of qualified leads. These fees are earned, generally,from the delivery of a lead to a participating insurance provider or localagent. In certain instances, consumers are providedthe opportunity to link directly to a third-party insurance provider’s website.In these situations, the consumer will complete the third-party company’sonline application, and InsWeb will be paid a fee for that consumer link orclick-through.

 

InsWebis subject to all of the risks inherent in the electronic commerce industry andspecial risks related to the online insurance industry. These risks include,but are not limited to, uncertain economic conditions which could result inlower growth rates, the changing nature of the electronic commerce industry,variations in the availability and cost of acquiring consumer traffic,unpredictability of future revenues, reliance on key customers –insurancecarriers, agents and other providers – who are themselves subject to volatilityin their operating cycles, and reliance on a third-party intermediary whoprovides leads to local insurance agents on InsWeb’s behalf. These risks anduncertainties, among others, could cause InsWeb’s actual results to differmaterially from historical results or those currently anticipated. In light ofthe evolving nature of InsWeb’s business to better capitalize on its positionas a leading insurance portal, including the current expansion of InsWeb’sagent network program, InsWeb believes that period-to-period comparisons of itsoperating results are not necessarily meaningful and should not be relied uponas an indication of future performance. Moreover, there is no assurance thatInsWeb will be able to sustain profitability.

 

**2.****                                    Summary of Significant Accounting Policies**

 

***Basis of presentation***

 

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

 

***Use of estimates***

 

Thepreparation of financial statements in conformity with United States generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

***Cash, cash equivalents and short-terminvestments***

 

InsWebconsiders all highly liquid investments with original maturities of threemonths or less at the date of purchase to be cash equivalents. Investments withmaturities greater than three months at the date of purchase but less than oneyear are classified as short-term investments. Cash and cash equivalents arestated at cost, which approximates fair value, given the relatively shortduration of the underlying securities.

 

F-7

----

 

**2.****                                    Summary of Significant Accounting Policies(continued)**

 

***Revenue recognition***

 

TheCompany recognizes revenue when (i) persuasive evidence of an arrangementbetween the Company and the customer exists, (ii) delivery of the productto the customer has occurred or service has been provided to the customer, (iii) theprice to the customer is fixed or determinable and (iv) collectibility ofthe sales price is reasonably assured.

 

Transactionfee revenue from consumer leads, for both auto insurance and term lifeinsurance, is recognized when such lead (either as a consumer click-through orafter completion of the InsWeb application) is delivered to a participatinginsurance company. Transaction fee revenue from closed policies is recognizedin the period that the insurance company has sold an insurance policy from aqualified consumer lead.

 

InsWebagency commission revenue is based on a percentage of the insurance policypremium related to each insurance policy sale where InsWeb has acted as theagent. Agency commission revenue is recognized on the effective date of thepolicy, less an estimate for early cancellations of the underlying insurancepolicies.

 

***Online marketing and direct marketing expense***

 

InsWeb’smarketing strategy is designed to increase consumer traffic to its website andto drive awareness of its insurance products and services. The Company employsvarious means of advertising, which consist primarily of online advertising,sponsored search, portal advertising, e-mail campaigns and strategicpartnerships with high-profile online companies that can drive significanttraffic to its site. Fees related to the Company’s online marketing areexpensed in the period the related consumer click-through occurs or in somecases, when the consumer leads are generated. Fixed-fee payments, which arepart of certain strategic partnership agreements, are generally expensed on astraight-line basis over the term of the agreement, or ratably based on deliveryof the specified consumer traffic targets, whichever method results in agreater expense during the period. Online advertising payments based on perunit transactions are expensed in the period in which the consumer trafficoccurred and are included in direct marketing expense.

 

Costsrelated to advertising and promotions of products are charged to sales andmarketing expense as incurred. Direct marketing expense for the years ended December 31,2007, 2006 and 2005 were $19,567,000, $18,576,000, and $15,207,000,respectively.

 

***Property and equipment and other long-livedassets***

 

Propertyand equipment are stated at cost less accumulated depreciation. Depreciation oncomputer and office equipment, furniture and fixtures and purchased software iscalculated using the straight-line method over the estimated useful lives ofthe assets, generally two to five years. Amortization on leasehold improvementsis calculated using the straight-line method over the estimated useful lives ofthe improvements or the remaining term of the lease, whichever is shorter.Expenditures for maintenance and repairs are charged to expense as incurred.

 

InsWebevaluates the recoverability of its long-lived assets in accordance withStatement of Financial Accounting Standard No. 144, “*Accountingfor the Impairment or Disposal of Long-Lived Assets*” (“SFAS 144”).SFAS 144 requires the recognition of impairment losses related tolong-lived assets in the event the net carrying value of such assets exceedsfair value. InsWeb assesses the impairment of its long-lived assets annually orwhen events or changes in circumstances indicate that the carrying value of anasset may not be recoverable.

 

***Concentration of risk—credit***

 

Financialinstruments that potentially subject InsWeb to concentrations of credit risk,as defined by Statement of Financial Accounting Standard No. 105, “*Disclosure of Information about Financial Instruments withOff-Balance-Sheet Risk and Financial Instruments with Concentrations of CreditRisk*,” consist principally of cash, cash equivalents, and accountsreceivable. InsWeb deposits its cash and cash equivalents with various domesticfinancial institutions. Such deposits may exceed federal deposit insurancelimits.

 

InsWeb’sinvestments consist of diversified investment grade securities. InsWeb’sinvestment policy limits the amount of credit exposure to investments in anyone issue, and InsWeb believes no significant concentration of credit riskexists with respect to these investments.

 

F-8

----

 

**2.****                                    Summary of Significant Accounting Policies(continued)**

 

InsWeb’scustomer base is dispersed across many different geographic areas, and mostcustomers are in the insurance industry in the United States. Collection oftrade receivables may be affected by changes in economic or other industryconditions and may, accordingly, impact InsWeb’s overall credit risk. InsWebperforms ongoing credit evaluations of its customers and generally does notrequire collateral. InsWeb reviews the need for allowances for potential creditlosses based on historical losses, and records a provision when collectibilityis uncertain. The Company has not experienced significant credit losses todate. Generally, receivables are due 30 days from the invoice date and areconsidered past due after this date.

 

***Concentration of risk—significant customers***

 

For theyear ended December 31, 2007, three customers (NetQuote, Allstate and AIG)accounted for 16%, 13%and 13% of total revenues, respectively.For the yearended December 31, 2006, two customers (NetQuote and AIG) accounted for17% and 10% of total revenues. For the year ended December 31, 2005, onecustomer (NetQuote) accounted for 27% of total revenues.At December 31,2007, two customers (AIG and NetQuote) each accounted for 17% of accountsreceivable. At December 31, 2006, two customers (AIG and NetQuote)accounted for 18% and 12% of accounts receivable, respectively.

 

***Income taxes***

 

InsWeb uses the asset andliability method of accounting for income taxes. Deferred tax assets andliabilities are recognized for the estimated future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases. Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled. To the extent a deferred tax asset cannotbe recognized under the preceding criteria, allowances are established. At December 31,2007 and 2006, all deferred tax assets, without offsetting liabilities in thesame jurisdiction, were fully offset by a valuation allowance.

 

In July 2006, theFinancial Accounting Standards Board ( “FASB”) issued Financial Interpretation(FIN) No. 48, *Accounting forUncertainty in Income Taxes*(FIN 48), which clarifies the accountingfor uncertainty in income taxes recognized in the financial statements inaccordance with the Statement of Financial Accounting Standards  (“SFAS”) No. 109, *Accounting for Income Taxes.*FIN 48provides that a tax benefit from an uncertain tax position may be recognizedwhen it is more likely than not that the position will be sustained uponexamination, including resolutions of any related appeals or litigationprocesses, based on the technical merits. Income tax positions must meet amore-likely-than-not recognition threshold at the effective date to berecognized upon the adoption of FIN 48 and in subsequent periods. Thisinterpretation also provides guidance on measurement, derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition. InsWeb adopted the provisions of FIN No. 48 on January 1,2007. The adoption of FIN No. 48 did not have a material impact on ourconsolidated financial position or results of operations.

 

F-9

----

 

InsWeb accrues interest andpenalties on underpayment of income taxes related to unrecognized tax benefitsas a component of income tax expense in our consolidated statements ofoperations. No amounts were recognized for interest and penalties upon adoptionof FIN 48 or during the year ended December 31, 2007.

 

***Net income (loss) per share***

 

Basic netincome (loss) per share is computed using the weighted-average number of sharesof common stock outstanding. Diluted earnings per share is a measure of thepotential dilution that would occur if stock options had been exercised.Potentially dilutive securities have been excluded from the computation ofdiluted net loss per share, for the years ended 2006 and 2005, as their effectwould be antidilutive.

 

Thefollowing table reconciles the numerator and denominator used to calculatebasic and diluted net loss per share of common stock:

 
| ** **                                                      | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(In thousands, except per share  amounts)**                   | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                            |       |                                       |       |   |   |   |   |
| Numerator for basic and diluted net loss  per share:            |       |                                       |       |   |   |   |   |
| Net income (loss) available to common  stockholders             |       | $                                          | 2,421      |   | $ | (3,370 | ) | $ | (5,941 | ) |
|                                                            |       |                                       |       |   |   |   |   |
| Denominator for net income (loss) per  share:                   |       |                                       |       |   |   |   |   |
| Basic—weighted average shares of common  stock outstanding |       | 4,387                                      |       | 4,092 |   | 4,234 |   |
| Dilutive effect of employee stock options                       |       | 908                                        |       | — |   | — |   |
| Diluted                                                         |       | 5,295                                      |       | 4,092 |   | 4,234 |   |
|                                                            |       |                                       |       |   |   |   |   |
| Net income (loss) per share:                                    |       |                                       |       |   |   |   |   |
| Basic—as reported                                          |       | $                                          | 0.55       |   | $ | (0.82 | ) | $ | (1.40 | ) |
| Diluted—as reported                                        |       | $                                          | 0.46       |   | $ | (0.82 | ) | $ | (1.40 | ) |

 

Potentiallydilutive securities that are not included in the diluted net loss calculationbecause they would be antidilutive are employee stock options to purchaseshares totaling 970,000 as of December 31, 2006 and 679,000 as of December 31,2005.

 

***Segment information***

 

InsWeboperates in one segment, business-to-consumer electronic insurance services.InsWeb markets its online marketplace in the United States. The Chief ExecutiveOfficer has been identified as the Chief Operating Decision Maker because hehas final authority over resource allocation decisions and performanceassessment.

 

F-10

----

 

**2.****                                    Summary of Significant Accounting Policies(continued)**

 

***Recently issued accounting standards***

 

In September 2006,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards No. 157, *Fair ValueMeasurements*(“Statement157”). Statement 157 does not require any new fair value measurementsbut clarifies the fair value definition, establishes a fair value hierarchythat prioritizes the information used to develop assumptions used for measuringfair value, and expands disclosures about fair value measurements. Statement157 clarifies that fair value is the exchange price in an orderly transactionbetween market participants to sell the asset or transfer the liability in themarket. The fair value hierarchy gives the highest priority to quoted prices inactive markets and the lowest priority to unobservable data, for example, thereporting entity’s own data. It emphasizes that fair value is a market-basedmeasurement, not an entity-specific measurement, and a fair value measurementshould therefore be based on the assumptions that market participants would usein pricing the asset or liability. Statement 157 expands disclosures about theuse of fair value to measure assets and liabilities in interim and annualperiods subsequent to initial recognition, including the inputs used to measurefair value and the effect 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. The Company adoptedStatement 157 at the beginning of 2008. There has been no material impact to theCompany’s financial statements due to the adoption of Statement 157.

 

In February 2007, the FASB issuedStatement of Financial Accounting Standards No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities, Including an Amendment of FASB Statement No. 115*(“Statement 159”).Statement 159allows entities to voluntarily choose to measure many financial assets andfinancial liabilities as well as certain nonfinancial instruments that aresimilar to financial instruments (collectively, eligible items) at fair value(the fair value option). The election is made on an instrument-by-instrumentbasis and is irrevocable. If the fair value option is elected for aninstrument, Statement 159 specifies that all subsequent changes in fair valuefor that instrument shall be reported in earnings and is effective as of thebeginning of an entity’s first fiscal year that begins after November 15,2007. Upon initial adoption, Statement 159 provides entities with a one-timechance to elect the fair value option for eligible items. The effect of thefirst measurement to fair value should be reported as a cumulative-effectadjustment to the opening balance of retained earnings in the year thestatement is adopted. The Company adopted Statement 159 at the beginning of2008 and did not make any elections for fair value accounting. Therefore, theCompany did not record a cumulative-effect adjustment to its opening retainedearnings balance.

 

F-11

----

 

**3. Share-Based Payments**

 

In July 1997,InsWeb authorized the 1997 Stock Option Plan (the “Option Plan”) and the SeniorExecutive Option Plan (the “Executive Plan”). Under the Option Plan, the Boardof Directors may issue incentive stock options to employees of InsWeb and itssubsidiaries and may also issue nonqualified stock options to employees,officers, directors, independent contractors and consultants of InsWeb and itssubsidiaries. Under the Executive Plan, the Board of Directors may issuenonqualified stock options to employees, officers and directors of InsWeb andits subsidiaries. In May 2003, the Option Plan was amended, withstockholder approval, to provide that each director would receive afully-vested option to purchase 5,000 shares of common stock on July 1st(or the first business day thereafter) of each year in which the directorremains in office. The Option Plan provides for an automatic annual increase inthe share reserve, to be effective on the first day of each fiscal year, by anumber of shares equal to 5% of the number of common shares outstanding as ofthe last day of the preceding fiscal year. Options granted under both plans arepriced at the fair market value on the date of grant and prior to January 1,2006 generally vested in equal monthly installments over a three-year period;options granted subsequent to January 1, 2006 generally vest ratably overa one-year period. Certain options granted to members of InsWeb’s Board ofDirectors vest immediately. Prior to January 1, 2006, options expired tenyears from the date of grant; options granted subsequent to January 1,2006 expire five years from the date of grant.

 

On October 19, 2005, the CompensationCommittee of the Board of Directors of InsWeb approved the acceleration ofvesting of all stock options outstanding as of October 19, 2005 held byemployees.Options to purchase approximately 496,000 shares of common stock, or33% of the total outstanding options, with varying remaining vesting schedules,were subject to the acceleration and became immediately exercisable. All otherterms and conditions applicable to such options, including the exercise prices,remained unchanged.

 

Options outstanding andcurrently exercisable by exercise price at December 31, 2007 are asfollows:

 
| ** **                                                              | ** ** | **Options Outstanding** | ** ** | **Options Currently Exercisable**                                      | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Exercise Prices**                                                | ** ** | **Number  Outstanding**      | ** ** | **Weighted Average  Remaining Contractual  Life (in years)** | ** ** | **Number  Outstanding** | ** ** | **Weighted Average  Exercise Price** | ** ** |
| **(in  thousands, except contractual life and exercise price amounts)** |       |                         |       |                                                                             |       |   |   |   |   |   |
| $1.40-$2.03                                                             |       | 118                          |       | 3.77                                                                             |       | 118 |   | $ | 2.02 |   |
| $2.05-$2.05                                                             |       | 340                          |       | 3.84                                                                             |       | 298 |   | $ | 2.05 |   |
| $2.30-$2.79                                                             |       | 237                          |       | 6.20                                                                             |       | 234 |   | $ | 2.74 |   |
| $2.80-$3.25                                                             |       | 232                          |       | 6.41                                                                             |       | 214 |   | $ | 3.03 |   |
| $3.26-$4.85                                                             |       | 508                          |       | 4.74                                                                             |       | 390 |   | $ | 3.90 |   |
| $4.86-$6.30                                                             |       | 345                          |       | 4.49                                                                             |       | 345 |   | $ | 5.18 |   |
| $6.31-$270.00                                                           |       | 173                          |       | 3.32                                                                             |       | 141 |   | $ | 34.81 |   |
|                                                                    |       | 1,953                        |       | 4.73                                                                             |       | 1,740 |   | $ | 5.95 |   |
|                                                                         |            |                              |            |                                                                                  |            |  |  |  |  |  |  |

 

InsWeb has an EmployeeStock Purchase Plan (the “Purchase Plan”) under which eligible employees mayauthorize payroll deductions of up to 15% of their compensation to purchaseshares at 85% of the lower of the fair market value of the common stock on thedate of commencement of the offering or on the last day of the six-monthpurchase period. During 2007, 2006 and 2005, 7,861, 8,246 and 8,373 sharesrespectively, were distributed to employees at prices ranging from $1.97 pershare to $2.84 per share. The weighted average fair value of the 2007, 2006 and2005 awards were $2.44, $2.26 and $2.48 per share, respectively. At December 31,2007, InsWeb had 407,000 shares of its common stock reserved for futureissuance under the Purchase Plan. The number of shares of common stock issuableunder the 1999 Plan is increased by 50,000 shares each year until January 1,2008.

 

On January 1,2006, the Company adopted the provisions of Statement of Financial AccountingStandards No. 123(R), “*Share-Based Payments*,”(“SFAS 123(R)”) requiring it to recognize expense related to the fair value ofits share-based compensation awards. The Company elected to use the modifiedprospective transition method as permitted by SFAS 123(R) and thereforehas not restated its financial results for prior periods. Under this transitionmethod, share-based compensation expense for the year ended December 31,2006 includes all share-based compensation awards granted subsequent to January 1,2006 based on the grant-date fair value estimated in accordance with theprovisions of SFAS 123(R). The Company recognizes compensation expense forstock option awards issued subsequent to January 1, 2006 on astraight-line basis over the requisite service period of the award. Alloptions issued prior to January 1, 2006 were fully vested at the date ofadoption of SFAS 123(R), and therefore, no compensation expense was recognizedfor these options for the years ended December 31, 2007 and 2006.

 

F-12

----

 

**3. Share-Based Payments (continued)**

 

The followingtable sets forth the total share-based compensation expense resulting fromstock options and the Purchase Plan included in the Company’s operatingexpenses in its condensed consolidated statements of operations for the yearended December 31, 2007 and 2006 (in thousands):

 
| ** **                             | ** ** | **Year Ended  December 31,** | ** ** |
|----------------------------------------|------------|----------------------------------------|------------|
| ** **                             | ** ** | **2007**                               | ** ** | **2006** | ** ** |
| ** **                             | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Sales and marketing                    |       | $                                      | 239        |   | $ | 126 |   |
| Technology                             |       | 92                                     |       | 32 |   |
| General and administrative             |       | 783                                    |       | 273 |   |
|                                   |       |                                   |       |   |   |
| Total share-based compensation expense |       | $                                      | 1,114      |   | $ | 431 |   |

 

Priorto the adoption of SFAS 123(R), InsWeb accounted for its share-basedcompensation plans under the recognition and measurement principles of APBOpinion No. 25, *“Accounting for StockIssued to Employees,”* and related interpretations.The followingtable illustrates the effect on net loss and net loss per share if InsWeb hadapplied the fair value recognition provisions of Financial Accounting StandardsBoard Statements No. 123 *“Accounting for Share-BasedCompensation*” and No. 148, *“Accounting forShare-Based Compensation-Transition and Disclosure,”* to share-based employeecompensation for the year ended December 31, 2005 (in thousands, exceptper share amounts):

 
| ** **                                                                                        | ** ** | **Year Ended  December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                        | ** ** | **2005**                               | ** ** |
|                                                                                              |       |                                   |       |
| Net loss, as reported                                                                             |       | $                                      | (5,941     | ) |
| Deduct: Share based compensation expense  determined under fair value based method for all awards |       | (1,009                                 | )          |
|                                                                                              |       |                                   |       |
| Pro forma net loss                                                                                |       | $                                      | (6,950     | ) |
|                                                                                              |       |                                   |       |
| Net loss per share:                                                                               |       |                                   |       |
| Basic — as reported                                                                          |       | $                                      | (1.40      | ) |
|                                                                                              |       |                                   |       |
| Basic — pro forma                                                                            |       | $                                      | (1.64      | ) |
|                                                                                              |       |                                   |       |
| Share-based compensation expense included  in the determination of net loss, as reported          |       | $                                      | —     |   |

 

The fair value of share-based awards granted pursuant to the Company’sstock option plans was estimated using the Black-Scholes model with thefollowing assumptions for the years ended December 31, 2007, 2006 and2005:

 
| ** **                                | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                      |       |                                       |       |   |   |   |   |
| Expected term (in years)                  |       | 3.00                                       |       | 3.68 |   | 4.78 |   |
| Expected volatility                       |       | 0.66                                       |       | 0.72 |   | 0.58 |   |
| Risk-free interest rate                   |       | 4.8                                        | %          | 4.0 | % | 4.0 | % |
| Expected dividend                         |       | —                                     |       | — |   | — |   |
| Weighted-average fair value at grant date |       | $                                          | 1.91       |   | $ | 1.17 |   | $ | 1.51 |   |
|                                           |            |                                            |            |  |  |  |  |  |  |  |

 

The Black-Scholesmodel is also used to determine the fair value of the shares issued for thePurchase Plan for the years ended December 31, 2007, 2006 and 2005. Inconnection with the Purchase Plan, for 2007, 2006 and 2005, assumptions usedfor expected term (in years), volatility and risk-free interest rate wereapproximately 0.50, 0.50 and 4.0% respectively.

 

***Expectedterm.*** Theexpected term represents the period that the Company’s share-based awards areexpected to be outstanding. As permitted by Staff Accounting Bulletin No. 107,Topic 14, “Share Based Payment,” the Company adopted a temporary “simplified”method to developing the estimate of the expected term of an employee stockoption. Under the “simplified”

 

F-13

----

 

**3. Share-Based Payments (continued)**

 

method, theexpected term is calculated by adding the vesting term to the contractual termof the option grant and dividing the total by two. This simplified method ispermitted until such time as more detailed information about exercise behavioris known.

 

***Expectedvolatility.***The Company uses the trading history of its common stock in determining anestimated volatility factor when using the Black-Scholes option-pricing formulato determine the fair value of options granted.

 

***Risk-freeinterest rate.***The Company bases the risk-free interest rate used in the Black-Scholesvaluation method on the implied yield currently available on U.S. Treasuryzero-coupon issues with the same or substantially equivalent remaining term.

 

***Expecteddividend.***TheCompany has not declared dividends to date. Therefore, the Company uses a zerovalue for the expected dividend value factor when using the Black-Scholesoption-pricing formula to determine the fair value of options granted.

 

***Estimatedforfeitures.***SFAS 123(R) requires forfeitures to be estimated at the time of grant andrevised, if necessary, in subsequent periods if actual forfeitures differ frominitial estimates. When estimating forfeitures, the Company considershistorical voluntary and involuntary termination behavior as well as analysisof actual option forfeitures.

 

Activity under all ofthe Company’s stock option plans is as follows:

 
| **(in thousands, except exercise price amounts)** | ** ** | **Shares Available  for Grant** | ** ** | **Shares  Outstanding** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------|------------|------------------------------------------------|------------|
|                                                                       | ** ** | ** **                                | ** ** | ** **              | ** ** | ** **                                     | ** ** |
| Balances, December 31, 2004                                           |       | 1,047                                     |       | 1,144                   |       | $                                              | 8.54       |   |
| Additional shares reserved                                                 |       | 203                                       |       | —                  |       | —                                         |       |
| Granted                                                                    |       | (425                                      | )          | 425                     |       | $                                              | 2.91       |   |
| Exercised                                                                  |       | —                                    |       | (35                     | )          | $                                              | 2.17       |   |
| Canceled/forfeited                                                         |       | 63                                        |       | (63                     | )          | $                                              | 10.22      |   |
| Balances, December 31, 2005                                           |       | 888                                       |       | 1,464                   |       | $                                              | 6.98       |   |
| Additional shares reserved                                                 |       | 206                                       |       | —                  |       | —                                         |       |
| Granted                                                                    |       | (652                                      | )          | 652                     |       | $                                              | 2.19       |   |
| Exercised                                                                  |       | —                                    |       | (29                     | )          | $                                              | 2.39       |   |
| Canceled/forfeited                                                         |       | 164                                       |       | (164                    | )          | $                                              | 5.57       |   |
| Balances, December 31, 2006                                           |       | 606                                       |       | 1,923                   |       | $                                              | 5.88       |   |
| Additional shares reserved                                                 |       | 206                                       |       | —                  |       | —                                         |       |
| Granted                                                                    |       | (552                                      | )          | 552                     |       | $                                              | 3.98       |   |
| Exercised                                                                  |       | —                                    |       | (460                    | )          | $                                              | 3.25       |   |
| Canceled/forfeited                                                         |       | 62                                        |       | (62                     | )          | $                                              | 3.81       |   |
| Expiration of 1997 stock option plan on  July 1, 2007                 |       | (322                                      | )          |                    |       |                                           |       |
|                                                                       |       |                                      |       |                    |       |                                           |       |
| Balances, December 31, 2007                                           |       | —                                    |       | 1,953                   |       | $                                              | 5.70       |   |

 

Theaggregate intrinsic values of options outstanding and exercisable at December 31,2007 and 2006 were $9,071,000, and $739,000, respectively. Aggregate intrinsicvalue represents the total intrinsic value (the aggregate difference betweenthe closing stock price of the Company’s common stock on December 31, 2007and 2006 and the exercise price for in-the-money options) that would have beenreceived by the option holders if all options had been exercised on December 31,2007 and 2006, respectively. The total intrinsic value of options exercised forthe years ended December 31, 2007, 2006 and 2005 were $1,903,000, $15,000and $38,000, respectively. The weighted-average remaining contractual terms ofoptions outstanding and exercisable at December 31, 2007 and 2006 were4.73 and 6.01 years, respectively.

 

Asof December 31, 2007, there was $170,000 in unrecognized compensation costfor all stock options outstanding that were unvested. This amount is expectedto be recognized over the weighted-average period of 2.2 years. The Company’scurrent practice is to issue new shares to satisfy share option exercises.

 

Cash received from stock option exercises and purchases under thePurchase Plan for December 31, 2007, 2006 and 2005 were $1,517,000,$88,000 and $98,000 respectively.

 

F-14

----

 

**4.****                                    Consolidated Financial Statement Details**

 

***Cash and cash equivalents***

 

Cash andcash equivalents consist of the following (in thousands):

 
| ** **                       | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Cash                             |       | $                     | 2,407      |   | $ | 2,084 |   |
| Money market funds               |       | 1,343                 |       | 603 |   |
| Commercial paper                 |       | 3,315                 |       | 2,393 |   |
| Government sponsored enterprises |       | 3,712                 |       | 1,670 |   |
|                             |       | $                     | 10,777     |   | $ | 6,750 |   |

 

InsWebaccounts for its short-term investments under Statement of Financial AccountingStandards No. 115, “*Accounting for CertainInvestments in Debt and Equity Securities*” (“SFAS 115”).SFAS 115 requires the classification of investments in debt and equitysecurities with readily determinable fair values as “held-to-maturity,” “available-for-sale,”or “trading.” Management determines the appropriate classification of its debtsecurities at the time of purchase and reevaluates such designation as of eachbalance sheet date. Securities are classified as held-to-maturity when InsWebhas the positive intent and ability to hold the securities to maturity.Securities classified as held-to-maturity are carried at amortized cost, whichis adjusted for amortization of premiums and accretion of discounts tomaturity. Such amortization is included in interest income. Securities notclassified as held-to-maturity are classified as available-for-sale and arecarried at fair value based on quoted market prices, with unrealized gains andlosses reported as a component of other comprehensive loss in stockholders’equity. The cost of securities sold is based on the specific identificationmethod. InsWeb holds no short-term investments at December 31, 2007 and2006.

 

At December 31,2007, the contractual maturities of InsWeb’s investment portfolio are less thanone year. The gains and losses from the sale of available-for-sale securitieshave not been significant to date.

 

***Prepaid expenses, related party receivableand other current assets***

 

Prepaidexpenses, related party receivable and other current assets consist of thefollowing (in thousands):

 
| ** **               | ** ** | **December 31,** | ** ** |
|--------------------------|------------|-----------------------|------------|
| ** **               | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Prepaid insurance        |       | $                     | 139        |   | $ | 174 |   |
| Related party receivable |       | 48                    |       | — |   |
| Other                    |       | 409                   |       | 224 |   |
|                     |       | $                     | 596        |   | $ | 398 |   |

 

**                                               **On December 27,2007, $48,000 was paid by InsWeb to the respective governmental agencies onbehalf of the Chairman and CEO to cover his portion of withholding taxes forexercises of non-qualified stock options. This amount was subsequently repaidby the Chairman and CEO to InsWeb in January 2008.

 

F-15

----

 

4.                                    **Consolidated Financial Statement Details (continued)**

 

***Property and equipment***

 

Propertyand equipment, net, consists of the following (in thousands):

 
| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Computer and office equipment |       | $                     | 4,711      |   | $ | 4,693 |   |
| Furniture and fixtures        |       | 1,009                 |       | 1,009 |   |
| Leasehold improvements        |       | 687                   |       | 687 |   |
| Software                      |       | 3,244                 |       | 3,242 |   |
|                          |       | 9,651                 |       | 9,631 |   |
| Less accumulated depreciation |       | (9,394                | )          | (9,242 | ) |
|                          |       | $                     | 257        |   | $ | 389 |   |

 

Depreciation expense was $152,000, $210,000,and $418,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

 

***Other assets***

 

Otherassets consist of the following (in thousands):

 
| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Deposits for operating leases |       | $                     | 75         |   | $ | 113 |   |
| Other                         |       | —                |       | 2 |   |
|                          |       | $                     | 75         |   | $ | 115 |   |

 

***Accrued expenses***

 

Accruedexpenses consist of the following (in thousands):

 
| ** **                             | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2007**              | ** ** | **2006** | ** ** |
|                                   |       |                  |       |   |   |
| Accrued employee compensation          |       | $                     | 402        |   | $ | 495 |   |
| Deferred rent                          |       | 374                   |       | 463 |   |
| Accrued lease obligations (see Note 5) |       | 248                   |       | 1,563 |   |
| Other                                  |       | 402                   |       | 151 |   |
|                                   |       | $                     | 1,426      |   | $ | 2,672 |   |

 

***Stockholders’ Equity—NegotiatedCommon Stock Repurchases***

 

InMarch 2005, the Board of Directors authorized management to repurchase755,821 shares of InsWeb common stock, consisting of 531,947 shares held byNationwide Mutual Insurance Company and 223,874 shares held by Century CapitalPartners, L.P. These shares represented 16% of InsWeb’s total outstandingcommon stock at that date and were purchased for $1,738,000, or $2.30 pershare.

 

F-16

----

 

**5.****                                    Commitments and Contingencies**

 

***Leases***

 

InsWebleases its current office facilities under non-cancelable operating leases,which expire at various dates through April 2011, including a 10-yearlease agreement through 2011 for office space in the Sacramento area whichhouses its corporate headquarters and agency operations. InsWeb has options toextend the lease at the end of the lease term, and has the right of firstrefusal on other office space in the complex. In addition, InsWeb has enteredinto various sublease arrangements associated with previously exited facilitiesthat have terms extending through September 2008.

 

Netcontractual lease commitments as of December 31, 2007 are summarized asfollows (in thousands):

 
| **Years ending December 31,** | ** ** | **Gross lease  commitments** | ** ** | **Sublease  income** | ** ** | **Net lease  commitment** | ** ** |
|----------------------------------------------|------------|-----------------------------------|------------|----------------------|------------|--------------------------------|------------|
| 2008                                         |       | $                                 | 2,936      |                 | $          | (1,801                         | )          | $ | 1,135 |   |
| 2009                                         |       | 1,078                             |       | (191                 | )          | 887                            |       |
| 2010                                         |       | 1,078                             |       | (197                 | )          | 881                            |       |
| 2011                                         |       | 359                               |       | (33                  | )          | 326                            |       |
| Thereafter                                   |       | —                            |       | —               |       | —                         |       |
|                                         |       | $                                 | 5,451      |                 | $          | (2,222                         | )          | $ | 3,229 |   |

 

Rentexpense for the years ended December 31, 2007, 2006, and 2005 was$916,000, $1,010,000, and $999,000 (net of sublease rental income of$2,167,000, $2,030,000, and $1,961,000), respectively.

 

Securitydeposits payable (under sublease agreements) as of December 31, 2007 and2006 was $21,000.

 

One ofInsWeb’s operating leases is for a 65,000 square foot building in Redwood City,California. Under the terms of the sublease of this facility, as amended, thesublessee is obligated to rent the entire facility for the duration of the InsWeblease (through September 2008) and to pay all rent and operating expensesotherwise payable by InsWeb directly to the landlord. Therefore, the subleaseresults in a reduction in InsWeb’s contractual lease commitments of $1,515,000,through the remainder of the lease.In connection with its lease obligations forformerly occupied facilities, InsWeb must make assumptions regarding thepotential future sublease income relative to these facilities. These estimatesand assumptions are affected by area-specific conditions such as new commercialdevelopment, market occupancy rates and future market prices. Based on theseassumptions, the Company maintains an accrual for formerly occupied facilities.The accrual for lease obligations of formerly occupied facilities was $248,000at December 31, 2007.If these estimates or their related assumptionschange in the future, InsWeb may be required to record a charge to increase itsexisting accrual.

 

***Securities Class****** Action***

 

A securities classaction lawsuit was filed on December 5, 2001 in the United States DistrictCourt for the Southern District of New York, (the “Court”) purportedly onbehalf of all persons who purchased our common stock from July 22, 1999through December 6, 2000. The complaint named as defendants InsWeb,certain current and former officers and directors, and three investment bankingfirms that served as underwriters for InsWeb’s initial public offering in July 1999.The complaint, as subsequently amended, alleges violations of Sections 11 and15 of the Securities Act of 1933 and Sections 10 and 20 of the SecuritiesExchange Act 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 theproposed settlement, the plaintiffs would dismiss and release all claimsagainst participating defendants in exchange for a contingent payment guarantyby the insurance companies

 

F-17

----

*** ***

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

 

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, butclarified that the plaintiffs may seek to certify a more limited class in theDistrict Court. Because of the significant technical barriers presented by theCourt’s decision, the parties withdrew the proposed settlement and theplaintiffs filed an amended complaint.  Thereis no assurance that a new settlement will be negotiated, and then approved. Ifthe settlement is not negotiated and subsequently approved, InsWeb intends todefend the lawsuit vigorously. The litigation and settlement process isinherently uncertain and management cannot predict the outcome, though, ifunfavorable, it could have a material adverse effect on InsWeb’s financialcondition, results of operations and cash flows.

 

***Section 16(b) Lawsuit***

 

On October 12,2007, Vanessa Simmonds, a purported stockholder of InsWeb, filed a complaint inthe United States District Court for the Western District of Washington,against InsWeb and two investment banking firms that served as underwriters forthe initial public offering of our common stock in July 1999.  the complaint alleges that:  (i) the defendants, other underwritersof the offering, and unspecified officers, directors§ and principalstockholders of InsWeb constituted a “group” that owned in excess of 10% ofInsWeb’s outstanding common stock between July 23, 1999 and July 20,2000; (ii) the defendants were therefore subject to the “short swing”prohibitions of Section 16(b) of the Securities Exchange Actgroup of1934; and (iii) the defendants engaged in purchases and sales, or salesand purchases, of the Company’s common stock within periods of less than sixmonths in violation of the provisions of Section 16(b).  The complaint seeks disgorgement of allprofits allegedly received by the defendants, with interest and attorneys fees,for transactions in violation of Section 16(b).  InsWeb, as the statutory beneficiary of anypotential Section 16(b) recovery, is named as a nominal defendant inthe complaint.  A number of similarlawsuits against underwriters of other public offerings have recently been filedby the same plaintiff and law firm.   On February 11,2008, the court approved a stipulated order that InsWeb need not answer orotherwise respond to the complaint.  InsWeb intends to defend the lawsuitvigorously. The litigation and settlementprocess is inherently uncertain and management cannot predict the outcome,though, if unfavorable, it could have a material adverse effect on InsWeb’sfinancial condition, results of operations and cash flows.

 

***Patent Litigation***

 

On November 30,2007, Autobytel Inc.filed a complaint in the United States District Court forthe Eastern District of Texas against InsWeb and three other defendants.  The complaint alleges that InsWeb and theother defendants infringed U.S. Patent No. 6,282,517 (the “‘517 patent”),which appears to disclose a method and apparatus to allow a potentialautomobile purchaser to create and submit a purchase request for a new or usedautomobile over a computer network.  Thecomplaint contains generic allegations that InsWeb infringed the ‘517 patent bymaking, using, offering to sell and selling systems and/or methods that embodythe invention claimed in the ‘517 patent and/or actively inducing and/orcontributing to others’ infringement of such inventions.  The complaint seeks unspecified monetarydamages 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.  The complaint alleges that the defendantshave infringed InsWeb’s U.S. Patent No. 6,898,597, which relates to anevent logging system that monitors for the occurrence of predefined websiteusage events. Defendant Autobytel, through its wholly-owned subsidiary AVV,marketed and sold a product known as WebControl that embodies the inventionclaimed in InsWeb’s patent. In January 2008, Autobytel sold AVV, includingthe WebControl product, to Dominion Enterprises.

 

InsWeb intends tovigorously defend the Texas lawsuit and prosecute the California action.  The litigation and settlement process isinherently uncertain and management cannot predict the outcome, though, ifunfavorable, it could have a material adverse effect on InsWeb’s financialcondition, results of operations and cash flows.

 

F-18

----

 

**6.****                                    Income Taxes**

 

TheCompany’s provision for income taxes was $45,000, $0 and $0 for the years endedDecember 31, 2007, 2006 and 2005 respectively.

 

As of December 31,2007 and 2006, InsWeb had net operating loss carry forwards of approximately$186,000,000 and $189,000,000 for federal income tax purposes and $130,000,000and $127,000,000 for state income tax purposes, respectively. The federal netoperating loss carry forwards will begin to expire in the year 2011 and statenet operating loss carry forwards will begin to expire in 2008. InsWeb’sability to utilize a portion of its net operating loss carry forwards to offsetfuture taxable income may be subject to restrictions attributable to equitytransactions that result in changes in ownership as defined in the Tax ReformAct of 1986. These restrictions may limit, on an annual basis, InsWeb’s futureuse of its net operating loss carry forwards. 

 

Thecomponents of the net deferred tax assets and liabilities are presented below(in thousands):

 
| ** **                        | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Net operating loss carry forwards |       | $                     | 70,950     |   | $ | 71,632 |   |
| Tax credit carry forwards         |       | 958                   |       | 1,228 |   |
| Accruals and allowances           |       | 6,259                 |       | 8,120 |   |
| Other                             |       | (5,001                | )          | (5,359 | ) |
|                              |       | 73,166                |       | 75,621 |   |
| Less valuation allowance          |       | (73,166               | )          | (75,621 | ) |
| Net deferred tax asset            |       | $                     | —     |   | $ | — |   |

 

Due to uncertainty surrounding the realization of thefavorable tax attributes in future tax returns, InsWeb has recorded a valuationallowance against its net deferred tax asset. The valuation allowance recordedfor the years ended December 31, 2007, 2006 and 2005 decreased by$2,455,000 in 2007 and increased by $1,413,000 and $3,762,000 for 2006 and 2005respectively. Deferredtax assets relating to net operating loss carry forwards for federal and statepurposes include approximately $2,700,000associated with stock compensation activity for which subsequent realized taxbenefits, if any, will be credited directly to equity in the future.

 

Thedifference between the income tax benefit at the federal statutory rate of 34%and InsWeb’s effective tax rate is due primarily to the valuation allowanceestablished to offset the deferred tax assets. The provision for income taxesis different than the amount computed using the applicable statutory federalincome tax rate with the difference for each year summarized below:

 
| ** **                                       | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
| Federal tax (benefit) at statutory rate          |       | 34                    | %          | 34 | % | 34 | % |
| State taxes, net of federal benefit              |       | —                | %          | — | % | — | % |
| Share based compensation                         |       | (8                    | )%         | — | % | — | % |
| Other                                            |       | 2                     | %          | — | % | — | % |
| Adjustment due to change in valuation  allowance |       | (26                   | )%         | (34 | )% | (34 | )% |
| Provision for income taxes                       |       | 2                     | %          | 0 | % | 0 | % |

 

**7.****                                    Employee Benefit Plan**

 

InsWeb hasa defined contribution plan offered to all eligible employees, which isqualified under section 401(k) of the Internal Revenue Code. InsWebwill match 50% of the first 6% of elective contributions made by eachqualifying employee. Each participant is 100% vested in elective contributionsand is incrementally vested one-third at the end of each of three consecutiveyears of service in employer contributions. Employer contributions for theyears ended December 31, 2007, 2006 and 2005 were $92,000, $119,000, and$151,000 respectively.

 

F-19

----

 

**8.****                                    Subsequent Events**

 

Aspecial meeting of stockholders was held on February 29, 2008 to considerand approve the InsWeb Corporation 2008 Stock Option Plan (the “Plan”). ThePlan was approved at the special meeting with 89% of the shares present orrepresented by proxy voting in favor of adoption. The Company reserved1,500,000 shares under the Plan.

 

**9.****                                    Quarterly Financial Information (unaudited)**

 
| ** **                                                                         | ** ** | **Quarter ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| **(amounts in thousands, except per share amounts)** | ** ** | **Mar. 31**       | ** ** | **Jun. 30** | ** ** | **Sept. 30** | ** ** | **Dec. 31** | ** ** |
|                                                                               |       |                   |       |   |   |   |   |   |   |
| **Fiscal 2007:**                                                                   |       |                   |       |   |   |   |   |   |   |
| Total revenues                                                                     |       | $                      | 8,110      |   | $ | 8,129 |   | $ | 9,231 |   | $ | 7,728 |   |
| Operating expenses                                                                 |       | 7,784                  |       | 8,024 |   | 8,875 |   | 6,433 |   |
| Income from operations                                                             |       | 326                    |       | 105 |   | 356 |   | 1,295 |   |
| Other income (expense), net                                                        |       | 76                     |       | 109 |   | 108 |   | 91 |   |
| Net income                                                                         |       | $                      | 402        |   | $ | 214 |   | $ | 464 |   | $ | 1,386 |   |
| Net income per share:                                                              |       |                   |       |   |   |   |   |   |   |
| Basic                                                                              |       | $                      | 0.10       |   | $ | 0.05 |   | $ | 0.10 |   | $ | 0.29 |   |
| Diluted                                                                            |       | $                      | 0.09       |   | $ | 0.04 |   | $ | 0.08 |   | $ | 0.23 |   |
|                                                                               |       |                   |       |   |   |   |   |   |   |
| **Fiscal 2006:**                                                                   |       |                   |       |   |   |   |   |   |   |
| Total revenues                                                                     |       | $                      | 7,655      |   | $ | 7,517 |   | $ | 7,505 |   | $ | 5,824 |   |
| Operating expenses                                                                 |       | 9,438                  |       | 9,415 |   | 9,192 |   | 6,301 |   |
| Loss from operations                                                               |       | (1,783                 | )          | (1,898 | ) | (1,687 | ) | (477 | ) |
| Other income (expense), net                                                        |       | 92                     |       | 2,145 |   | 97 |   | 141 |   |
| Net income (loss)                                                                  |       | $                      | (1,691     | ) | $ | 247 |   | $ | (1,590 | ) | $ | (336 | ) |
|                                                                               |       |                   |       |   |   |   |   |   |   |
| Net income (loss) per share - basic and  diluted                                   |       | $                      | (0.41      | ) | $ | 0.06 |   | $ | (0.39 | ) | $ | (0.08 | ) |

 

F-20

----

 

**Item 9. Changes in and Disagreements WithAccountants on Accounting and Financial Disclosure.**

 

None.

 

**Item 9A. Controls and Procedures.**

 

**(a)****         *Evaluationof disclosure controls and procedures***. Under the supervision and with the participation of our management,including our principal executive officer and principal financial officer, weevaluated the effectiveness of our disclosure controls and procedures, as suchterm is defined under Rule 13a-15(e) and 15d-15(e) promulgatedunder the Securities Exchange Act of 1934, as amended. Based upon thatevaluation, our principal executive officer and principal financial officerconcluded that our disclosure controls and procedures were effective as of theend of the period covered by this annual report.

 

**(b)****         *Management’sreport on internal control over financial reporting.***Our management is responsible for establishing andmaintaining adequate internal control over financial reporting.  Internal control over financial reporting isa process designed by, or under the supervision of, our Chief Executive Officerand Chief Financial Officer, and effected by our board of directors, managementand other personnel, to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles (“GAAP”),and includes those policies and procedures that:

 

1.              pertain to the maintenance of records that inreasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the Company;

 

2.              provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with GAAP, and that our receipts and expenditures are being madeonly in accordance with authorizations of our management and directors; and

 

3.              provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use or disposition of ourassets that could have a material effect on our financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements.  Also, projectionsof any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in condition, or thatthe degree of compliance with the policies or procedures may deteriorate.

 

Under the supervision and withthe participation of our management, including our Chief Executive Officer andChief Financial Officer, we conducted an evaluation of the effectiveness of ourinternal control over financial reporting based on criteria established inInternal Control – Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on our evaluation using criteria established in Internal Control –Integrated Framework our management concluded that our internal control overfinancial reporting was effective as of December 31, 2007.

 

This annual report does notinclude an attestation report of our registered public accounting firmregarding internal control over financial reporting.  Management’s report was not subject toattestation by our registered public accounting firm pursuant to temporary rules ofthe SEC that permit us to provide only management’s report in this annualreport.

 

**(c)****         *****Changes in internal control overfinancial reporting.*** Therehas been no change in the Company’s internal control over financial reportingduring the quarter ended December 31, 2007 that has materially affected,or is reasonably likely to affect, the Company’s internal control overfinancial reporting.

 

**Item9B. Other Information.**

 

  None.

 

31

----

 

**PART III**

 

The SECallows us to include information required in this report by referring to otherdocuments or reports we have already filed or will soon be filing. This iscalled “incorporation by reference.” We intend to file our definitive proxystatement pursuant to Regulation 14A not later than 120 days afterthe end of the fiscal year covered by this report, and certain informationtherein is incorporated in this report by reference.

 

**Item 10. Directors and Executive Officers,and Corporate Governance.**

 

Theinformation required by this Item is incorporated by reference to informationset forth in our definitive proxy statement under the heading “Management”.

 

Theinformation required by this Item with respect to compliance with Section 16(a) ofthe Securities Exchange Act of 1934 is incorporated by reference to informationset forth in our definitive proxy statement under the heading “Section 16(a) BeneficialOwnership Reporting Compliance.”

 

Theinformation required by this Item with respect to our code of ethics isincorporated by reference to information set forth in our definitive proxystatement under the heading “Proposal No. 1 – Election of Directors –Committee Charters and other Corporate Governance Materials.”

 

**Item 11. Executive Compensation.**

 

Theinformation required by this Item is incorporated by reference to informationset forth in our definitive proxy statement under the heading “ExecutiveCompensation and Other Matters.”

 

**Item 12. Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters.**

 

Theinformation required by this Item is incorporated by reference to informationset forth in our definitive proxy statement under the heading “Stock Ownershipof Certain Beneficial Owners and Management.”

 

**Item13. Certain Relationships and Related Transactions.**

 

Theinformation required by this Item is incorporated by reference to informationset forth in our definitive proxy statement under the heading “CertainRelationships and Related Transactions.”

 

32

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**Item14. Principal Accountant Fees and Services**

 

Theinformation required by this Item is incorporated by reference to informationset forth in our definitive proxy statement under the heading “PrincipalAccountant Fees and Services.”

 

**PART IV**

 

**Item 15. Exhibits and Financial Statement Schedules.**

 

**(a)****                              **The following documents are filed as part of thisForm:

 

1.                                    Financial Statements:

 
| ** **                                               | ** ** | **Page** |
|----------------------------------------------------------|------------|----------|
| Report of Independent Registered Public  Accounting Firm |       | F-2      |
| Consolidated Balance Sheets                              |       | F-3      |
| Consolidated Statements of Operations                    |       | F-4      |
| Consolidated Statements of Stockholders’  Equity    |       | F-5      |
| Consolidated Statements of Cash Flows                    |       | F-6      |
| Notes to Consolidated Financial Statements               |       | F-7      |

 

2.                                    Financial Statement Schedules:

 

The following financial statement schedule of InsWeb Corporation forthe years ended December 31, 2007, 2006 and 2005 is filed as part of thisreport and should be read in conjunction with the consolidated financialstatements of InsWeb Corporation.

 

Schedule II—Valuation and Qualifying Accounts

 

Other schedules have been omitted because the required information isnot present or not present in amounts sufficient to require submission of theschedules or because the information required is included in the consolidatedfinancial statements or notes thereto.

 

3.                                    Exhibits:

 

See Index to Exhibits. The Exhibits listed in the accompanying Indexare filed as part of this report.

 

33

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**SIGNATURES**

 

                                                Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934 the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized, on March 31, 2008.

 
|   | INSWEB CORPORATION |
|--------|--------------------|
|   |               |
|   |               |
|   | By:                | /s/ KIRAN RASARETNAM |
|   |               | Kiran Rasaretnam*Chief Financial  Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated:

 
| **Signature**             | ** ** | **Title**                                                | ** ** | **Date**            |
|---------------------------|------------|----------------------------------------------------------|------------|---------------------|
| ** **                | ** ** | ** **                                               | ** ** | ** **          |
| /s/ HUSSEIN A. ENAN       |       | Chairman of the Board and Chief Executive  Officer       |       | March 31, 2008 |
| Hussein A. Enan           |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ KIRAN RASARETNAM      |       | Chief Financial Officer (Principal  Financial Officer)   |       | March 31, 2008 |
| Kiran Rasaretnam          |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ STEVEN J. YASUDA      |       | Chief Accounting Officer (Principal  Accounting Officer) |       | March 31, 2008 |
| Steven J. Yasuda          |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ JAMES M. CORROON      |       | Vice Chairman of the Board                               |       | March 31, 2008 |
| James M. Corroon          |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ DENNIS H. CHOOKASZIAN |       | Director                                                 |       | March 31, 2008 |
| Dennis H. Chookaszian     |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ THOMAS W. ORR         |       | Director                                                 |       | March 31, 2008 |
| Thomas W. Orr             |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ ROBERT A. PUCCINELLI  |       | Director                                                 |       | March 31, 2008 |
| Robert A. Puccinelli      |       |                                                     |       |                |
|                      |       |                                                     |       |                |

 

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**INSWEB CORPORATION**

**EXHIBITS TO FORM 10-K ANNUAL REPORT**

**FOR THE YEAR ENDEDDECEMBER 31, 2007**

 
| **Exhibit  Number**    | ** ** | **Description of Document**                                                                                                                                                                                        |
|------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |       |                                                                                                                                                                                                                         |
| 3.1                    |       | Amended and Restated Certificate of  Incorporation of Registrant. (1)                                                                                                                                                        |
| 3.2                    |       | Bylaws of Registrant. (1)                                                                                                                                                                                                    |
| 4.1                    |       | Fourth Amended and Restated Investor Rights  Agreement between Registrant and certain Stockholders of Registrant, dated as  of January 24, 2001. (2)                                                                    |
| 10.1*                  |       | Form of Indemnification Agreement  between Registrant and Registrant’s directors and officers. (1)                                                                                                                 |
| 10.2*                  |       | Registrant’s 1997 Stock Option Plan. (1)                                                                                                                                                                                |
| 10.3*                  |       | Registrant’s 1999 Employee Stock Purchase  Plan. (1)                                                                                                                                                                    |
| 10.11                  |       | Lease Agreement between Registrant and  Oates/Allegheny Venture I, LLC, dated September 29, 2000. (3)                                                                                                              |
| 10.12                  |       | Third Amendment to Sublease Agreement  between Registrant and Seven Networks, Inc., dated May 1, 2002. (4)                                                                                                         |
| 10.16*                 |       | InsWeb  Corporation Executive Retention and Severance Plan. (5)                                                                                                                                                              |
| 10.22†10.23† |       | InsWeb Services Agreement by and between Registrant and  NetQuote, Inc., dated as of September 26, 2006. (8)Services Agreement  between registrant and NetQuote, Inc. effective as of July 10,  2007.(9) |
| 14.1                   |       | Code of Business Conduct and Ethics. (6)                                                                                                                                                                                     |
| 21.1                   |       | Subsidiaries of Registrant. (10)                                                                                                                                                                                             |
| 23.1                   |       | Consent of Independent Registered Public  Accounting Firm. (10)                                                                                                                                                              |
| 31.1                   |       | Certification of Chief Executive Officer,  pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the  Securities Exchange Act, as amended. (10)                                                               |
| 31.2                   |       | Certification of Chief Financial Officer,  pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the  Securities Exchange Act, as amended. (10)                                                               |
| 32.1                   |       | Certification of Chief Executive Officer  and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.  (10)                                                                                                   |

 

----

| (1)  | Incorporated by reference to identically numbered  exhibit to Registrant’s Registration Statement on Form S-1 (File  No. 333-78095), as amended (the “Form S-1”). |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | Incorporated by reference to Exhibit 2.3 to  Registrant’s Current Report on Form 8-K filed on February 8, 2002.                                                             |
| (3)  | Incorporated by reference to Exhibit 10.23  to Registrant’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 2000.                                        |
| (4)  | Incorporated by reference to identically numbered  exhibit to Registrant’s Annual Report on Form 10-K for the year ended  December 31, 2002.                                     |
| (5)  | Incorporated by reference to Exhibit 10.13  to Registrant’s Quarterly Report on Form 10-Q for the three months ended  June 30, 2004.                                        |
| (6)  | Incorporated by reference to identically numbered  exhibit to Registrant’s Annual Report on Form 10-K for the year ended  December 31, 2003.                                     |
| (7)  | Incorporated by reference to identically numbered  exhibit to Registrant’s Annual Report on Form 10-K for the year ended  December 31, 2005.                                     |
| (8)  | Incorporated by reference to identically numbered  exhibit to Registrant’s Quarterly Report on Form 10-Q for the three  months ended September 30, 2006.                         |
| (9)  | Incorporated by reference to identically numbered  exhibit to Registrant’s Quarterly report on Form 10-Q for the three  months ended September 30, 2007.                         |
| (10) | Filed herewith.                                                                                                                                                                                 |

 

†                                         Confidential treatmenthas been granted as to a portion of this Exhibit.

*                                         Constitutes a managementcontract or a compensatory plan or arrangement.

 

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**INSWEB CORPORATION**

**SCHEDULE II**

**VALUATION AND QUALIFYING ACCOUNTS**

**Years ended December 31, 2007, 2006 and2005**

 
| **Description**                    | ** ** | **Balance at  Beginning  of Period** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Charged  to Other  Accounts** | ** ** | **Deductions** | ** ** | **Balance at  End of  Period** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------|------------|----------------|------------|------------------------------------------|------------|
| Year ended December 31, 2007: |       |                                      |       |                                          |       |                                 |       |           |       |                                     |       |
| Allowance for doubtful accounts    |       | $                                         | 12,000     |                                          | $          | —                               |       | $              | 24,000     |                                     | $          | — |   | $ | 36,000 |   |
| Year ended December 31, 2006: |       |                                      |       |                                          |       |                                 |       |           |       |                                     |       |
| Allowance for doubtful accounts    |       | $                                         | 36,000     |                                          | $          | —                               |       | $              | —     |                                     | $          | (24,000 | ) | $ | 12,000 |   |
| Year ended December 31, 2005: |       |                                      |       |                                          |       |                                 |       |           |       |                                     |       |
| Allowance for doubtful accounts    |       | $                                         | 27,000     |                                          | $          | 9,000                                |       | $              | —     |                                     | $          | — |   | $ | 36,000 |   |

 

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