**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC. 20549**

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**FORM 10-K**

**(MarkOne)**

**x**                               Annual report pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934 for the fiscal year endedDecember 31, 2006

**or**

** ̈**                                  Transition report pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934 for thetransition periodfrom           to            

**Commission File Number 0-26083**

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**INSWEB CORPORATION**

**(Exact name of registrant asspecified in its charter)**

| **DELAWARE**                     |   | **94-3220749**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| Incorporation or  organization)  |   | Identification  No.) |

 

**11290 Pyrites Way, GoldRiver, California 95670**

(Address of principalexecutive offices)

**(916) 853-3300**

(Registrant’s telephone number, including area code)

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**Securitiesregistered pursuant to Section 12(b) of the Act:**

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

 

**Securitiesregistered pursuant to Section 12(g) of the Act:**

**Common Stock, $0.001 parvalue**

(Title of Class)

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Indicate by check markwhether the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.  YES  ̈  NO x

Indicate by check markwhether the registrant is not required to file reports pursuant to Section 13or 15(d) of the Exchange Act.  YES  ̈  NO x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. YES x NO  ̈

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (see definition of “large accelerated filer andaccelerated filer” in Rule 12b-2 of the Exchange Act). LargeAccelerated Filer  ̈  Accelerated Filer  ̈  Non-AcceleratedFiler  x

Indicate by check markwhether the registrant is a shell company (as defined by Rule 12b-2of the Exchange Act). YES  ̈ NO x

The aggregate market valueof registrant’s voting and non-voting common equity held by non-affiliatesof registrant, based upon the closing sale price of the common stock as of thelast business day of registrant’s most recently completed second fiscal quarter(June 30, 2006), as reported on the Nasdaq National Market, wasapproximately $4,950,000. Shares of common stock held by each officer, directorand holder of 5% or more of the outstanding common stock have been excluded inthat such persons may be deemed to be affiliates. This determination ofaffiliate status is not necessarily a conclusive determination for otherpurposes.

Outstanding shares of registrant’s common stock, $0.001par value, as of March 2, 2007: 4,120,159

**DOCUMENTSINCORPORATED BY REFERENCE**

Parts of the definitive Proxy Statement for registrant’s2006 Annual Meeting of Stockholders to be filed with the Commission pursuant toRegulation 14A not later than 120 days after the end of the fiscalyear covered by this Report are incorporated by reference into Part III ofthis Form 10-K Report.

 

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**INSWEB CORPORATION**

**Annual Report on Form 10-KFor the Fiscal Year Ended December 31, 2006**

**Tableof Contents**

| **PART I**                                     |
|-----------------------------------------------------|
| Item 1.                                             |   | Business |   | 2 |
| Item 1A.                                            |   | Risk Factors |   | 10 |
| Item 1B.                                            |   | Unresolved Staff Comments |   | 16 |
| Item 2.                                             |   | Properties |   | 17 |
| Item 3.                                             |   | Legal Proceedings |   | 17 |
| Item 4.                                             |   | Submission of Matters to a Vote of Security Holders |   | 18 |
| **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.                                            |   | Controls and Procedures |   | 31 |
| Item 9B.                                            |   | Other Information |   | 31 |
| **PART III**                                   |
| Item  10.                                           |   | Directors and Executive Officers of the Registrant |   | 31 |
| Item 11.                                            |   | Executive Compensation |   | 31 |
| Item 12.                                            |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters |   | 31 |
| Item 13.                                            |   | Certain Relationships and Related Transactions |   | 32 |
| Item 14.                                            |   | Principal Accountant Fees and Services |   | 32 |
| **PART IV**                                    |
| Item  15.                                           |   | Exhibits and Financial Statement Schedules |   | 32 |
| Signatures                                          |   | 33 |
| Exhibit Index                                  |   | 34 |
| Schedule  II—Valuation and Qualifying Accounts |   | 35 |

 

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**PART I**

*Unless otherwiseindicated or required by the context, as used in this Annual Report on Form 10-K,the terms “we,” “our” and “us” refer to InsWeb Corporation and its subsidiariesthat are consolidated in conformity with accounting principles generallyaccepted in the United States.*

*Certain informationcontained in this Annual Report on Form 10-K should be considered “forward-lookingstatements” as defined by Section 21E of the Private Securities LitigationReform Act of 1995. All statements in this report other than historicalinformation may be deemed forward-looking statements. These statements present(without limitation) the expectations, beliefs, plans and objectives ofmanagement and future financial performance and assumptions underlying, or judgmentsconcerning, the matters discussed in the statements. The words “believe,” “estimate,”“anticipate,” “project” and “expect,” and similar expressions, are intended toidentify forward-looking statements. Forward-looking statements involve certainrisks, estimates, assumptions and uncertainties, including our ability to generate significant revenues fromour core business; our ability to achieve profitability; our reliance onautomobile insurance; our ability to expand our operations; our reliance on alimited number of insurance providers for our current revenues; and our successin developing and maintaining cost efficient online relationships to attractconsumers to our website. A variety of factors could cause actualresults or outcomes to differ materially from those expected and expressed inour forward-looking statements. Some important risk factors that could causeactual results or outcomes to differ from those expressed in theforward-looking statements are described in “Item 1A Risk Factors” of thisreport.*

*The list of factors that may affect future performanceand the accuracy of forward-looking statements described in “Item 1A RiskFactors”  of this Report is illustrative,but by no means exhaustive. Additional risk factors may be described from timeto time in our future filings with the U.S. Securities and ExchangeCommission. Accordingly, all forward-looking statements should be evaluatedwith the understanding of their inherent uncertainty. All such risk factors aredifficult to predict, contain material uncertainties that may affect actualresults 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 InsWeb OnlineInsurance Marketplace**

InsWeb operates an online insurance marketplace thatenables consumers to comparison shop online and to obtain insurance company-sponsoredquotes for a variety of insurance products, including automobile, homeownersand term life. InsWeb’s marketplace electronically matches consumers andinsurance providers. InsWeb has combined extensive knowledge of the insuranceindustry, technological expertise and close relationships with a number ofinsurance companies to develop an integrated online marketplace. InsWeb’smarketplace 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 and term life insurance. Management believes that InsWeb providesinsurance providers with pre-qualified consumers at attractive acquisitioncosts, with the scalable, cost-efficient distribution capabilities of InsWeb’sInternet-based model.

InsWeb’s principal sourceof revenues is transaction fees from participating insurance providers, eitherdirectly from an insurance company or from a local insurance agent. Whilequotes obtained through InsWeb’s online insurance marketplace are provided toconsumers free of charge, InsWeb earns revenues from participating insurancecompanies or agents based on the delivery of qualified leads. In certaininstances, consumers are provided the opportunity to link directly to a thirdparty insurance provider’s 

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website(“Sponsored Web Link” program). In these situations, the consumer will completethe third party company’s online application, and InsWeb will be paid a fee forthat consumer link or click-through.

**The QuoteGeneration and Purchase Process**

For those consumersthat proceed with an InsWeb application, the quote generation and purchaseprocess generally involves the following steps:

·       dataentry by the consumer;

·       electronicunderwriting and rating;

·       presentationof quotes to the consumer;

·       deliveryof leads to participating insurance provider;

·       purchaseof the insurance policy;

***Data Entry.******  ***To complete ashopping session, a consumer completes an online form that requests informationsuch as the consumer’s age, address and coverage requirements, a process thatInsWeb estimates takes approximately 10 minutes, depending on the type ofinsurance sought and the complexity of the consumer’s profile. The quote formcaptures a comprehensive set of information designed to address basicunderwriting and rating criteria. To assist consumers in evaluating andfulfilling their insurance needs, InsWeb provides consumers with a variety ofinteractive 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 particular typeof 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 theconsumer, the insurance companies can reduce or eliminate the expenseassociated with collecting consumer data. Moreover, information entereddirectly by consumers typically contains fewer errors than information providedorally to an agent or insurance company representative, who must then enterthat information manually into the insurance company’s system.

***Underwriting.******  ***InsWeb’s softwareuses criteria set by each participating insurance company to analyze a consumer’sdata and determine whether it fits within the insurance company’s targeted riskprofile. InsWeb’s system can provide rapid feedback to an insurance companyregarding the impact that particular criteria are having on the number of leadsbeing directed to that company, and also permits individual criteria to beeasily added or removed. Electronic underwriting eliminates the expense ofscreening and quoting risks that an insurance company ultimately may not wantto accept. Electronic underwriting also ensures that consumers are onlypresented with quotes from companies who are interested in doing business withthem. In addition, InsWeb integrates each of its instant quoting participatinginsurance companies’ rating criteria into its online marketplace.

***Presentation ofQuotes.******  ***After a consumer has completed theform for a particular product, the consumer is presented with a “quote pad.”The quote pad contains the logos of insurance providers (either a local agentor an insurance company) who are interested in presenting a quote to theconsumer. In some cases the rates charged by the insurance companies will alsodisplayed. When rates are not displayed, the quote pad informs the consumerwhich insurance providers will present a quote on a delayed basis, either viae-mail or telephone. The response method varies among insurance products andcompanies.

***Delivery of Leads.******  ***InsWeb earns revenues from participating insuranceproviders based on the delivery of qualified leads. With auto insuranceproviders (including insurance companies, third party local agent networks andInsWeb’s AgentInsider network, which provides leads directly to local personallines 

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insurance agents), InsWebis paid a transaction fee based on the delivery of a lead, whether or not theconsumer actually purchases a policy. For auto insurance coverage, qualifiedleads are produced when a consumer clicks to view insurance company quotes.These leads are produced both for insurance companies providing instant onlinequotes and for insurance companies and local insurance agents who provide emailor other offline quotes. For term life insurance coverage, consumer leads are sent to InsWeb’slicensed subsidiary, InsWeb Insurance Services, Inc., which earns acommission when a policy is sold.

***Purchase of Policy.******  ***After InsWebgenerates and delivers a qualified lead, insurance providers may responddirectly to the interested consumer by e-mail or telephone to close thepurchase of the policy or direct the lead to an agent for follow-up. Thedelivery of a qualified lead to the insurance company or local agent does notrequire further involvement by InsWeb, although InsWeb monitors insurancecompany responses and works with companies and agents to ensure that they areresponding to leads generated from the online insurance marketplace in a timelyfashion. In connection with InsWeb’s term life insurance marketplace, InsWebperforms closing services, through InsWeb’s Term Life Agency, for most of itsparticipating insurance companies. These closing services include advisingconsumers about coverage options, confirming consumer information, selling thepolicy and taking a premium deposit.

**Interactive WebsiteFeatures and Information**

To assist consumersin evaluating and fulfilling their insurance needs, InsWeb provides consumerswith a variety of interactive website features and insurance-relatedinformation, including:

·       toolsto help consumers estimate their coverage requirements for auto and term lifeinsurance;

·       researchcapabilities to help consumers review the financial strength of insurancecompanies nationwide;

·       answersto frequently asked questions on insurance;

·       articleson a wide variety of insurance and personal finance topics;

·       glossariesof insurance-related terms; and

·       toll-free phone service.

**Insurance Products**

Insurance companies participating in InsWeb’s onlineinsurance marketplace currently offer automobile, homeowners and term lifeinsurance. In addition, InsWeb has contractual relationships with third-partyproviders for renters, condominium insurance, home warranty, RV, motorcycle,critical illness and health insurance.

***AutomobileInsurance.******  ***Automobile insurance comprises thelargest segment of the consumer insurance market, and, to date, has accountedfor most of the consumer traffic on InsWeb’s online marketplace, and a majorityof its revenues. At December 31, 2006, InsWeb’s online marketplace offeredquotes or web-sponsored links to consumers in all 50 states, plus the Districtof Columbia.

***Term Life Insurance.******  ***At December 31,2006, the InsWeb online marketplace offered comparative quotes for term lifeinsurance from 10 companies in all 50 states, plus the District of Columbia.

***Other Products.******  ***InsWeb’sonline marketplace also allows consumers to shop for homeowners, renters andcondominium insurance, as well as home warranty, motorcycle and RV insurance,and health and critical illness insurance in certain states. At present, theInsWeb online marketplace does not offer multiple quotes with respect to thesetypes of insurance; instead, consumers seeking quotes for these products arelinked to a single insurance company for each product in the states in which itis available.

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**Insurance CompanyRelationships**

InsWeb believes thatestablishing long-term relationships with reputable insurance companies isessential to its ability to offer a desirable insurance marketplace on itswebsite. InsWeb’s focus is to maintain and expand the product offeringsavailable on the online marketplace by selling InsWeb’s services to newcompanies and expanding InsWeb’s relationship with participating insurancecompanies. At December 31, 2006, InsWeb had relationships with 35insurance companies for automobile, homeowners and term life insurance,including many large companies with established brand names that InsWebbelieves are attractive to consumers.

**Insurance AgentNetwork**

In 2004, InsWeb launchedits agent network program which provides online auto insurance consumers accessto local insurance agents. Prior to September 2005, the agent networkprogram was conducted exclusively through an intermediary, NetQuote, Inc.During the years ended December 31, 2006, 2005 and 2004, NetQuote, Inc.represented 19%, 29% and 8% of auto transaction fees, respectively. With the launch of InsWeb’s proprietary agentnetwork offering (“AgentInsider”) in September 2005, the Company beganselling leads directly to local insurance agents. Through AgentInsider,insurance agents can bid for participation in InsWeb’s marketplace ofautomobile and homeowners insurance consumers. In addition, InsWeb has alsoentered into agreements with several large insurance companies to allow theircompanies’ agents to participate in AgentInsider without bidding. Whether thelead is obtained by the agent through bidding or participating through asponsoring insurance company, InsWeb is paid a fee for each consumer lead sentto an agent. As of December 31, 2006,2,400 local personal lines insurance agents were actively purchasing consumerleads through AgentInsider, representing 17% of auto transaction fees.

**Marketing and Sales**

InsWeb’s marketing programconsists of a two-pronged effort, with substantial resources directed both atattracting increased consumer traffic to the InsWeb website, and building andexpanding relationships with participating insurance companies and with localpersonal lines insurance agents. InsWeb believes that increased traffic willencourage insurance providers to develop and expand their relationship withInsWeb, and that enhancing the comparative shopping opportunities availablethrough increased insurance provider participation will drive further increasesin consumer traffic.

**Consumer Marketing**

InsWeb’s marketing strategy is designed to costeffectively increase consumer traffic to its website and to drive awareness ofits insurance products and services. The Company employs various means ofadvertising, which consist primarily of online advertising, sponsored search,portal advertising, e-mail campaigns and strategic partnerships withhigh-profile online companies that can drive significant traffic to its site.

***Online Direct-ResponseAdvertising.******  ***InsWeb’s online direct-responseadvertising, which drives the majority of InsWeb’s consumer traffic, isintended to create a presence for InsWeb on a wide range of websites whoseaudiences closely match its target audience. InsWeb’s key advertisements aredelivered through content sponsorships, banners and keywords on financial,news, real estate, classifieds, automobile, directory and general interestsites. InsWeb and some of its third-party marketing providers alsoconduct advertising campaigns promoting InsWeb through emails and electronicnewsletters. InsWeb’s advertisements are targeted primarily at consumers whomay be actively seeking insurance.

***OnlineRelationships.******  ***InsWeb seeks out relationships withcompanies whose websites feature a high volume of traffic or a substantivefocus that is related to the purchase of insurance coverage, such as sitesrelated to automobiles, homes or personal finances. Agreements with theseonline companies typically 

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provide that InsWeb paythe 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 7 days notice.

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

**Local InsuranceAgent Marketing and Acquisition**

InsWeb’s local agent salesand marketing efforts seek to identify personal line insurance agentsinterested in participating in the AgentInsider program through direct mail,email and telephone 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. At December 31,2006, the Company had five major insurance carriers who have contracted topromote or sponsor AgentInsider for their local agents.

**Technology**

**Architecture andInterfaces**

Since its inception, InsWeb has invested significantresources to develop and deploy its proprietary technology platform that InsWebbelieves constitutes a significant competitive advantage.

InsWeb’s software architecture facilitatesinteroperability among software components to maximize responsiveness,flexibility and reliability. This architecture enables InsWeb to efficientlydevelop and deploy new insurance company-specific modules forunderwriting, rating and data delivery. It also simplifies the process ofproviding InsWeb’s core marketplace functionality for use on insurance companysites. In order to speed implementation for each participating insurancecompany, InsWeb has developed transmission software components which allowconsumer data to be custom-formatted for delivery to each insurancecompany based on the requirements of the insurance company’s computer system.InsWeb has developed custom communication software to provide multiple types ofreal-time telecommunication links to its participating insurance companies.These components provide a variety of solutions to the insurance companies tobest meet their needs and interface with their legacy systems. InsWeb hasdevoted significant time and resources to maximize the efficiency ofintegrating new insurance companies into its online marketplace and to create aflexible, customizable Web interface. InsWeb’s front-end user interface isaccessible to consumers via standard Web browsers and is designed withoutunnecessary graphics that would increase download time.

InsWeb’s server softwareis designed as a high-volume transaction-processing environment, with afocus on reliability, redundancy and around-the-clock availability. It isdesigned to enable the system to respond rapidly and to simultaneouslyunderwrite and rate a consumer’s profile against all participating insurancecompanies’ criteria. The software is also designed for scalability, enablingInsWeb to expand processing capacity through the addition of more processorsand servers as transaction volumes increase.

**Security**

InsWeb employs third-partyfirewall technology to protect its corporate network from intrusion and usesproprietary designs to isolate confidential data on its network so that onlyselected information is 

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publiclyavailable on its website. Consumer information is transmitted to InsWeb’s siteusing Secure Socket Layer encryption technology, a widely used technology fortransmitting encoded data via a Web browser. InsWeb employs a number of otherencryption methods for delivery of consumer information to insurance companiesor local agents. InsWeb protects its system management functions using securitymodels integrated with the operating system. Additionally, some sensitivesoftware applications incorporate proprietary authentication schemes.

**Site Operations**

InsWeb’s hardware servers,storage systems, Internet connections, back-up strategies and network aredesigned to allow its online marketplace to operate continuously. InsWeb’s mainWeb 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.

**Product Development**

InsWeb devotes resources to improving the structure ofits products and delivering additional tools that allow insurance providers toeffectively reach consumers. InsWeb generally follows a monthly releaseschedule for new versions of its online user interface, which may incorporatetechnology advances, new product features and improvements in consumer interactivity.InsWeb also invests in refining its online consumer tools and researchmaterials, as well as developing new support products. InsWeb continues toresearch new methods of designing more useful insurance-related materialand presenting it to the consumer in a more meaningful context.

InsWeb’s technologyexpenses were approximately $4.5 million in 2006, $5.4 million in2005, and $5.4 million in 2004.

**Privacy Policy**

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 onlineinsurance distribution market, like the broader electronic commerce market, israpidly evolving and is highly competitive. InsWeb competes with othercompanies that provide quotes and sell insurance policies online, as well aswith:

·       singleinsurance company websites that offer quotes for their own insurance productsonline or by telephone;

·       leadgeneration services that provide consumer leads to insurance agents;

·       Web-basedinformation delivery services that use generic filings with state regulators todeliver estimated price quotes from various insurance companies;

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·       Web-assistedagency distribution services, that provide an Internet-based distributionchannel for traditional insurance agencies;

·       onlineworkplace marketers that sell insurance to employees over their employer’sintranet; and

·       providersof software technology to insurance companies and other competitors that maytarget electronic commerce solutions for the insurance industry.

InsWeb believes theprincipal bases for competition in the online insurance distribution marketinclude:

·       brandawareness;

·       varietyand quality of insurance company selection;

·       strengthof relationships and depth of technology integration with insurance companies;

·       accuracyof insurance quotes;

·       breadthand pricing of insurance product selection;

·       speed,accessibility and convenience;

·       qualityand quantity of website content; and

·       relationships with otheronline companies.

**GovernmentRegulation**

The insurance industry is subject to extensiveregulation under state laws. Insurance laws and regulations cover all aspectsof the insurance process, including sales techniques, underwriting foreligibility, rates, compensation, claim payments and record keeping by licensedinsurance companies and insurance agents. InsWeb performs functions forlicensed insurance companies and is, therefore, required to comply with acomplex set of rules and regulations that often vary from state to state.If InsWeb fails to comply with these rules and regulations, InsWeb, aninsurance company doing business with InsWeb, our officers, or agents with whomwe contract could be subject to various sanctions, including censure, fines, acease-and-desist order or other penalties. This risk, as well as changes in theregulatory climate or the enforcement or interpretation of existing law, couldrequire changes to InsWeb’s business or otherwise harm InsWeb’s business.Furthermore, because the application of online commerce to the insurance marketis relatively new, the impact of current or future regulations on InsWeb’sbusiness is difficult to anticipate.

In order to provide the types of services that requirean insurance license, InsWeb established InsWeb Insurance Services, Inc.in 1998 and currently maintains property and casualty licenses and life andhealth licenses in 50 states and the District of Columbia. In addition,officers and employees who are engaged in the sale of insurance are licensed asinsurance agents. InsWeb’s operations depend on the validity of and continuedgood standing under the licenses and approvals pursuant to which InsWeb’ssubsidiaries, licensed officers and agents operate. Licensing laws andregulations vary depending on the jurisdiction. The applicable licensing lawsand regulations are 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.

Offering services throughInsWeb Insurance Services, Inc. or through licensed officers and agentscould create conflicts with insurance companies that have policies prohibitingthem from employing insurance agents or from selling insurance through agentsthat compete with their own exclusive agents. 

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Theseconflicts could result in a loss of business from these insurance companies andcould harm InsWeb’s business.

**IntellectualProperty**

InsWeb regards its intellectual property as criticalto its success, and relies upon trademark, copyright and trade secrets laws inthe United States and other jurisdictions to protect its proprietary rights.The INSWEB mark has been registered in the United States, France, Germany,South Korea, Japan and the United Kingdom, and many other countries. Other U.S.and worldwide trademark applications and registrations include, but are notlimited to, AgentInsider, AgentInsider.com, InsWeb.com, Where You and YourInsurance Really Click, and Lower Your Insurance Costs, Not Your Expectations.InsWeb has applied for various patents on its core technology and relatedpatentable subject matter; and two patents have been issued. InsWeb’s pendingtrademark registrations and patent applications may not be approved or granted;or, if granted, may be successfully challenged by others or invalidated throughadministrative process or litigation. In addition, effective patent, copyright,trademark, and trade secret protection may be unavailable or limited in someforeign countries. InsWeb also seeks to protect its proprietary rights throughphysical and technological security measures, and through the use ofconfidentiality or license agreements with its business partners, employees,consultants, advisors and others. Despite InsWeb’s efforts to protect its proprietaryrights from unauthorized use or disclosure, employees, consultants, advisors orothers may not maintain the confidentiality of InsWeb’s proprietaryinformation, and this proprietary information may otherwise become known, or beindependently developed, by competitors. The steps InsWeb has taken may notprevent misappropriation of its proprietary rights, particularly in foreigncountries where laws or law enforcement practices may not protect itsproprietary rights as fully as in the United States.

InsWeb licenses its trademarks and similar proprietaryrights to third parties. While InsWeb attempts to ensure that the quality ofits brand is maintained by these companies, they may take actions that couldharm the value of InsWeb’s proprietary rights or the reputation of InsWeb orits services.

InsWeb may receive noticeof claims of infringement of other parties’ proprietary rights or claims thatits own patents or other intellectual property rights are invalid. In the past,InsWeb has been subject to infringement claims in the ordinary course of itsbusiness, including claims of alleged infringement of the trademark rights ofthird parties by InsWeb and the companies with which it does business. Any ofthese claims, with or without merit, could be time consuming to defend, resultin costly litigation, divert management attention and resources or requireInsWeb to enter into royalty or licensing agreements. Licenses may not beavailable on reasonable terms, if at all, and the assertion or prosecution of anyinfringement claims could significantly harm InsWeb’s business.

**Employees**

As of December 31, 2006, InsWeb had 95 full-timeemployees. InsWeb has never had a work stoppage, and none of its employees arecurrently represented under collective bargaining agreements. InsWeb considersits relations with its employees to be good. InsWeb believes that its futuresuccess will depend in part on the continued service of its senior managementand key technical personnel and its ability to attract, integrate, retain andmotivate highly qualified technical and managerial personnel. Competition forqualified personnel in InsWeb’s industry and geographical location is intense.InsWeb may not continue to be successful in attracting and retaining asufficient number of qualified personnel to conduct its business in the future.

Wehave no long-term employment agreements with any of our key personnel. However,the executive officers and certain other key members of management are eligibleto participate in the InsWeb Executive Retention and Severance Plan (the “Plan”)approved by the Board of Directors on June 14, 2004. 

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Participantsin the Plan are entitled to receive cash severance payments and health andmedical benefits in the event their employment is terminated in connection witha change in control. Participants will also receive these benefits if InsWebterminates their employment other than for “cause” or if the participantvoluntarily terminates his employment for “good reason” following certainspecified actions by InsWeb. Upon any other termination of employment, theparticipant will be entitled only to accrued salary through the date oftermination and any other vested benefits.

**AvailableInformation**

For further discussion concerning our business, seethe information included in Item 7 (“Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”) and Item 8 (“FinancialStatements and Supplementary Data”) of this report.

We make available free ofcharge 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”).

**Item 1A. RiskFactors.**

*Set forthbelow are the risks that we believe are material to our investors. This sectioncontains forward-looking statements. You should refer to the explanation of thequalifications and limitations on forward-looking statements set forth at thebeginning of Item 1 of this Report.*

**We have a historyof losses and we may not achieve or maintain profitability**

We have incurred operatinglosses of $5.8 million in 2006, $6.3 million in 2005, and$9.2 million in 2004. As of December 31, 2006, our accumulateddeficit was $192.0 million. Our operating results for future periods aresubject to numerous uncertainties, and we may not achieve sufficient revenuesto become profitable. Even if we achieve profitability, we may not be able tosustain or increase profitability on a quarterly or annual basis in the future.If we are unable to achieve profitability or if our profitability is delayed wemay need to seek additional financing to continue our business operations. Suchfinancing could be on terms that are dilutive to our existing stockholders orcould involve the issuance of securities that have rights and preferences thatare senior to those associated with our common stock. Moreover, if suchfinancing were not available or were available only upon terms that wereunacceptable to us, we could be required to delay, reduce, or cease certain ofour operations, any of which could materially harm our business and financialresults.

**If we are unable to achieve cash flow breakeven or togenerate working capital that may be required in the future, our ability tooperate could suffer or cease**

Our operating activities to date have consumed substantialamounts of cash, cash equivalents and short-term investments ($3.6 million in2006, $5.3 million in 2005, and $8.7 million in 2004) and may continue torequire capital in the future. At December 31, 2006, we had $6.8 millionin cash and cash equivalents. In order to remain competitive, we must continueto make investments essential to our ability to operate, including inparticular, investments in direct consumer marketing. In addition, we will continue to face the costs of being a public company. In theevent that we are unable to generate revenues sufficient to offset our costs,or if our costs of marketing and operations are greater than we anticipate, wemay be unable to grow our business at the rate desired or may be required to delay,reduce, or cease certain of our operations, any of which could materially harmour business and financial results.

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**Our business is difficult to evaluate because ourmarket is evolving rapidly and our business model is unpredictable**

An evaluation ofour future prospects is very difficult. An investor in our common stock mustconsider the uncertainties in relatively new and rapidly evolving markets.These uncertainties include:

·       anevolving and unpredictable business model, which makes prediction of futureresults uncertain and an investment in our common stock highly speculative;

·       thedevelopment of comparable services by competitors, which may reduce our marketshare;

·       ourability to retain key employees; and

·       ourreliance on key insurance providers and ability to retain insurance providers.

Our business strategy maynot be successful and we may not be able to successfully address theseuncertainties. Moreover, our ability to take the foregoing steps may behampered by our limited financial resources should we fail to rapidly increaserevenues or should increased revenues be more than offset by increasedoperating expenses.

**Our future revenues are unpredictable and ouroperating results are likely to fluctuate from quarter to quarter**

Due to the evolving nature of our business model andthe high proportion of our revenues that are derived from consumer traffic toour website, our future revenues are inherently difficult to forecast. In lightof recent changes in our business model, including the evolution 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.

Factors that maycause fluctuations in our operating results include the following, many ofwhich are outside our control:

·       Wemay experience consumer dissatisfaction with our online marketplace as we addor change features, or as the insurance coverage offered by participatinginsurance companies varies;

·       Wemay experience increases in our direct marketing expenses due to unanticipatedincreases in the cost of online advertising for insurance;

·       Consumertraffic may also fluctuate as a result of changes in level of advertising byentities with which we have insurance marketing relationships;

·       Ourrevenues may be harmed if we lose one or more significant insurance companyrelationships or if any of our participating insurance companies merge with oneanother;

·       Our revenues may be harmed by inadequate levels of participationby local personal lines insurance agents inour new agent network initiative, if the agent network program offeredby our current third party intermediary is unsuccessful or if our currentintermediary should cease to serve in this capacity and we are unsuccessful insecuring a replacement;

·       Useof the Internet by consumers may fluctuate due to seasonal factors or otheruncontrollable factors affecting consumer behavior;

·       Ourability to convert site visits into transaction fees and/or revenue frominsurance agency activities may fluctuate due to changes in our user interfaceor other features on our site; and

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

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**Seasonality affecting insurance shopping and Internetadvertising may cause fluctuations in our operating results**

We have experiencedseasonality in our business associated with general slowness in the insuranceindustry during the year-end holiday period. In addition, online advertisingfor insurance products becomes more expensive during the holiday period asinternet portals and other online firms dedicate an increasing percentage oftheir inventory to seasonal goods and services. We expect to continue to experienceseasonality as our business matures. Because of this seasonality, investors maynot be able to predict our annual operating results based on aquarter-to-quarter comparison of our operating results. We believe seasonalitywill have an ongoing impact on our business.

**Because a significant portion of our revenue isattributable to automobile insurance shopping on our online marketplace, we areespecially vulnerable to risks related to the online market for automobileinsurance or the automobile insurance industry generally**

Automobile insuranceaccounted for approximately 76% of our transaction revenues in 2006,approximately 79% in 2005 and approximately 77% in 2004. We anticipate thatautomobile insurance will continue to account for a substantial portion of ourrevenues for the foreseeable future. As a result, if we fail to attract a broadbase of consumers to shop for automobile insurance on our site, our ability togenerate revenue will be reduced and our business will be harmed. In addition,property and casualty insurance, including automobile insurance, is subject tooperating cycles. During a cycle in which loss ratios rise, insurance companiesmay choose to restrict the amount of business they write while they awaitapproval of rate increases from the various state insurance departments. Ourbusiness could be harmed if our participating insurance companies reduce theirparticipation in our online marketplace.

**We are exposed to increased costs and risks associatedwith complying with the increasing regulation of corporate governance anddisclosure standards**

We have spent asignificant amount of management time and external resources to comply withchanging laws, regulations and standards relating to corporate governance andpublic disclosure, including the Sarbanes-Oxley Act of 2002, new SECregulations and Nasdaq Stock Market rules. In particular, Section 404 ofthe Sarbanes-Oxley Act of 2002 requires management’s annual review andevaluation of our internal control systems, and attestations of the effectivenessof these systems by our independent registered public accounting firm. We havecommenced documenting our internal control systems and procedures and will needto consider improvements that may be necessary in order for us to comply withthe requirements of Section 404 (the current requirement is for management’sassessment by year end 2007 and for the independent registered publicaccounting firm audit of management’s assessment to be completed by year end2008). This process may require us to hire additional personnel and outsideadvisory services and will result in significant additional accounting andlegal expenses. We may encounter problems or delays in completing the reviewand evaluation, the implementation of improvements and we may be unsuccessfulin obtaining an unqualified report on our assessment of, and/or theeffectiveness of, our internal controls over financial reporting from ourindependent auditors. While we believe that we currently have adequate internalcontrols over financial reporting, in the event that our chief executiveofficer or chief financial officer determine that our controls over financialreporting are not effective as defined under Section 404, investorperceptions of our company may be adversely affected and could cause a declinein the market price of our stock.

**If we are unable to promote our brands and expand ourbrand recognition, our ability to draw consumers and agents to our serviceswill be limited**

A growing number of websites offer services that aresimilar to and competitive with the services offered on our online insurancemarketplace. Therefore, a positive recognition of our brand is critical to 

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attracting additionalconsumers to our website. Our current consumer marketing program consists ofthe maintenance of certain network online relationships and other selectivecost effective marketing campaigns, designed to maintain consumer awareness ofInsWeb and our online insurance marketplace. 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 agents and topromote and maintain our brands, we are continuing our financial commitment toboth the consumer and agent marketing efforts.  However, if our marketing efforts do notgenerate a corresponding increase in revenues or we otherwise fail tosuccessfully promote our brand, or if these efforts require excessiveexpenditures, our business will be harmed. Moreover, if consumers or agents donot perceive our existing services to be of high quality, or if we alter ormodify our brand image, introduce new services or enter into new business venturesthat are not favorably received, the value of our brand could be harmed.

Our ability to maintain apositive recognition of our brand also depends in part on the quality of theproducts and services consumers receive from our participating insurancecompanies or our insurance agency, including timely response to requests forquotes or coverage. If we are unable to provide consumers with high-qualityproducts and services, the value of our brand may be harmed and the number ofconsumers 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 onlineinsurance distribution market, like the broader electronic commerce market, isboth rapidly evolving and highly competitive. Increased competition,particularly by companies offering online insurance distribution, could reducethe fees we are able to charge our participating insurance providers orincrease the fees we are required to pay for online advertising, resulting inreduced margins or loss of market share, any of which could harm our business.In addition, our current and future competitors may be able to:

·       undertakemore extensive marketing campaigns for their brands and services;

·       devotemore resources to website and systems development;

·       adoptmore aggressive pricing policies; and

·       makemore attractive offers to potential employees, online companies and third-partyservice providers.

Accordingly, we may not beable to maintain or grow consumer traffic to our website and our base ofparticipating insurance companies, our competitors may grow faster than we do,or companies with whom we have strategic relationships may discontinue theirrelationships with us, any of which would harm our business.

**We do not have exclusive relationships or long-termcontracts with insurance companies, which may limit our ability to retain theseinsurance companies as participants in our marketplace and maintain theattractiveness of our services to consumers**

We do not have anexclusive relationship with any of the insurance companies whose insuranceproducts are offered on our online marketplace, and thus, consumers may obtainquotes and coverage 

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fromthese insurance 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 impactof the securities class action lawsuit involving InsWeb is uncertain**

A securities class actionlawsuit was filed on December 5, 2001 in the United States District Courtfor the Southern District of New York, (the “Court”) purportedly on behalf ofall persons who purchased our common stock from July 22, 1999 through December 6,2000. The complaint named as defendants InsWeb, certain current and formerofficers and directors, and three investment banking firms that served asunderwriters for InsWeb’s initial public offering in July 1999. Thecomplaint, as subsequently amended, alleges violations of Sections 11 and 15 ofthe Securities Act of 1933 and Sections 10 and 20 of the Securities ExchangeAct of 1934, on the grounds that the prospectuses incorporated in theregistration statements for the offering failed to disclose, among otherthings, that (i) the underwriters had solicited and received excessive andundisclosed commissions from certain investors in exchange for which theunderwriters allocated to those investors material portions of the shares ofour stock sold in the offerings and (ii) the underwriters had entered intoagreements with customers whereby the underwriters agreed to allocated sharesof the stock sold in the offering to those customers in exchange for which thecustomers agreed to purchase additional shares of InsWeb stock in theaftermarket at pre-determined prices. No specific damages are claimed. Similarallegations have been made in lawsuits relating to more than 300 other 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 will dismiss and release all claims againstparticipating defendants in exchange for a contingent payment guaranty by theinsurance companies collectively responsible for insuring the issuers in allthe related cases, and the assignment or surrender to the plaintiffs of certainclaims the issuer defendants may have against the underwriters. InsWeb and mostof the other issuer defendants have accepted the settlement proposal. On April 24,2006, a hearing was held to consider final approval of the settlement; theCourt’s ruling on final approval of the settlement remains pending. If theCourt does not approve the settlement, InsWeb intends to defend the lawsuitvigorously. The litigation and settlement process is inherently uncertain andwe cannot predict the outcome, though, if unfavorable, it could have a materialadverse effect on InsWeb’s financial condition, results of operations and cashflows.

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

We perform functions forlicensed insurance companies and are, therefore, required to comply with acomplex set of rules and regulations that often vary from state to state.If we fail to comply with these rules and regulations, we, an insurancecompany doing business with us, our officers, or agents with whom we contract,could be subject to various sanctions, including censure, fines, acease-and-desist order or 

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otherpenalties. This risk, as well as changes in the regulatory climate or theenforcement or interpretation of existing law, could expose us to additionalcosts, including indemnification of participating insurance companies for theircosts, and could require changes to our business or otherwise harm ourbusiness. Furthermore, because the application of online commerce to theconsumer insurance market is relatively new, the impact of current or futureregulations on InsWeb’s business is difficult to anticipate.

**If we are unable to safeguard the security and privacyof consumers’ and participating insurance companies’ confidential data,consumers and insurance companies may not use our services and our business maybe harmed**

A significant barrier toelectronic commerce and communications is the secure transmission of personallyidentifiable information of Internet users as well as other confidentialinformation over public networks. If any compromise or breach of security wereto occur, it could harm our reputation and expose us to possible liability. Aparty who is able to circumvent our security measures could misappropriateproprietary information or cause interruptions in our operations. We may berequired to make significant expenditures to protect against security breachesor to alleviate problems caused by any breaches. To date, we have experiencedno breaches 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 ourwebsite or interrupt our communications with individual insurance companies andharm our ability to generate revenue**

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

Additionally, several ofour participating insurance companies have chosen a technical solution thatrequires that our website servers communicate with these insurance companies’ computersystems in order to perform the underwriting and risk analysis and ratingfunctions required to generate quotes. Thus, the availability of quotes from agiven insurance 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 hardwareoperations are located in leased facilities in Gold River, California. If thislocation experienced a system failure, the performance of our website would beharmed. These systems are also vulnerable to damage from fire, power loss,telecommunications failures, break-ins, natural disasters 

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andsimilar events. If we seek to replicate our systems at other locations, we willface a number of technical challenges, particularly with respect to databasereplications, which we may not be able to address successfully. Although wecarry property and business interruption insurance, our coverage may not beadequate to compensate us for all losses that may occur. Our servers may alsobe vulnerable to computer viruses, physical or electronic break-ins and similardisruptions.

**We rely on the services of our executive officers andother key personnel, whose knowledge of our business and the insurance industryand technical expertise would be extremely difficult to replace**

Our future success issubstantially dependent on the continued services and continuing contributionsof our senior management and other key personnel, particularly Hussein A. Enan,Chairman of our Board and Chief Executive Officer, and the loss of the servicesof any of our executive officers or other key employees could harm our business.We have no long-term employment agreements with any of our key personnel,although William D. Griffin, our Chief Financial Officer, and L. EricLoewe, our Senior Vice President and General Counsel, and certain other keyemployees are entitled to certain severance benefits should their employment beinvoluntarily terminated. We maintain a $2 million life insurance policyon Mr. Enan that names InsWeb as the beneficiary, but we maintain nosimilar insurance on any of our other key employees. InsWeb has granted stockoptions as incentives to executive officers, new employees and certain otherkey personnel. As the value of these incentives is highly dependent on anincrease in the market price of our common stock, we may be unable to retainsuch key employees, nor retain or recruit other officers and key employees inthe future.

**We may be subject to claims for infringement ofintellectual property, with or without merit, which could be costly to defendor settle**

We may from time to timebe subject to claims of infringement of other parties’ proprietary rights orclaims that our own trademarks, patents or other intellectual property rightsare invalid. We have been subject to infringement claims in the ordinary courseof business, including claims of alleged infringement of the patent andtrademark rights of third parties by companies and us with which we havebusiness relationships. Any claims of this type, with or without merit, couldbe time-consuming to defend, result in costly litigation, divert managementattention and resources or require us to enter into royalty or licenseagreements. License agreements may not be available on reasonable terms, if atall, and the assertion or prosecution of any infringement claims couldsignificantly harm our business.

**Our stock price hasfluctuated widely**

The trading price of ourcommon stock has been volatile and may be significantly affected by factorsincluding actual or anticipated fluctuations in our operating results, newproducts or new contracts by us or our competitors, loss of key insuranceproviders, conditions and trends in the electronic commerce and insuranceindustries, general market conditions and other factors. These fluctuations maycontinue and could harm our stock price. Any negative change in the public’sperception of the prospects of Internet or electronic commerce companies couldalso depress our stock price regardless of our results.

**Delaware law and our charter documents containprovisions that could discourage or prevent a potential takeover, even if sucha transaction would be beneficial to our stockholders**

Provisions of Delaware lawand our certificate of incorporation and bylaws could make more difficult theacquisition of us by means of a tender offer, a proxy contest, or otherwise,and the removal of incumbent officers and directors.

**Item 1B. UnresolvedStaff Comments.**

Not applicable.

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**Item 2. Properties.**

InsWeb’s corporate headquarters and its principaladministrative, product development, sales and marketing operations are locatedin a 55,000 square foot facility in the Sacramento, California area, whichInsWeb occupies under a lease expiring in 2011. InsWeb also leasesapproximately 75,000 square feet of office space in Redwood City, Californiaunder leases expiring through September 2008. These facilities wereformerly occupied by InsWeb as its headquarters and were vacated by InsWeb inDecember 2000 when it consolidated its operations at its present facility.

One of the vacated office leases is for a 65,000square foot building in Redwood City, California. Under the terms of thesublease of this facility, as amended, the sublessee is obligated to rent theentire facility for the duration of the InsWeb lease (throughSeptember 2008) and to pay all rent and operating expenses otherwisepayable by InsWeb directly to the landlord. However, the sublessee is atechnology company with limited operating history and, therefore, there areinherent risks and uncertainties associated with its future operations and itsability to discharge its obligations through the term of the sublease. In theevent that the sublessee defaults on its obligations under the sublease, InsWebwould be responsible for making the required lease payments to the landlordthrough the remaining term of the lease. In connection with this lease andother contractual lease obligations for formerly occupied facilities, InsWeb mustmake assumptions regarding the potential future sublease income relative tothese facilities. These estimates and assumptions are affected by area-specificconditions such as new commercial development, market occupancy rates andfuture market prices. If these estimates or their related assumptions change inthe future, InsWeb may be required to record a charge to increase its existingaccrual.

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.

**Item 3. LegalProceedings.**

A securities class actionlawsuit was filed on December 5, 2001 in the United States District Courtfor the Southern District of New York, (the “Court”) purportedly on behalf ofall persons who purchased our common stock from July 22, 1999 through December 6,2000. The complaint named as defendants InsWeb, certain current and formerofficers and directors, and three investment banking firms that served as underwritersfor InsWeb’s initial public offering in July 1999. The complaint, assubsequently amended, alleges violations of Sections 11 and 15 of theSecurities Act of 1933 and Sections 10 and 20 of the Securities Exchange Act of1934, on the grounds that the prospectuses incorporated in the registrationstatements for the offering failed to disclose, among other things, that (i) theunderwriters had solicited and received excessive and undisclosed commissionsfrom certain investors in exchange for which the underwriters allocated tothose investors material portions of the shares of our stock sold in theofferings and (ii) the underwriters had entered into agreements withcustomers whereby the underwriters agreed to allocated shares of the stock soldin the offering to those customers in exchange for which the customers agreedto 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 will dismiss and release all claims againstparticipating defendants in exchange for a contingent payment guaranty by theinsurance companies collectively responsible for insuring the issuers in allthe related cases, and the assignment or surrender to the plaintiffs of certainclaims the issuer defendants may have against the underwriters. InsWeb and mostof the other issuer 

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defendantshave accepted the settlement proposal. On April 24, 2006, a hearing washeld to consider final approval of the settlement; the Court’s ruling on finalapproval of the settlement remains pending. If the Court does not approve thesettlement, InsWeb intends to defend the lawsuit vigorously. The litigation andsettlement process is inherently uncertain and we 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. Submissionof Matters to a Vote of Security Holders.**

InsWeb did not submit anymatters to a vote of our security holders during the fourth quarter of 2006.

**PART II**

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

InsWeb’scommon stock is quoted on the Nasdaq National Market under the symbol “INSW.”As of December 31, 2006, there were approximately 2,000 stockholders ofrecord. Certain shares are held by brokers and other institutions on behalf ofstockholders, and we are unable to determine the total number of stockholdersrepresented by these record holders. The following table sets forth, for thequarters indicated, the high and low sales price per share of InsWeb’s commonstock as reported on the Nasdaq National Market:

| ** **               | ** ** | **Price Range  Quarter Ended** | ** ** |
|--------------------------|------------|------------------------------------------|------------|
| ** **               | ** ** | **High**                                 | ** ** | **Low** | ** ** |
| **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 |   |
| **2005**                 |       |                                     |       |   |   |
| December 31,  2005  |       | $                                        | 4.30       |   | $ | 2.65 |   |
| September 30,  2005 |       | $                                        | 4.60       |   | $ | 2.85 |   |
| June 30, 2005       |       | $                                        | 3.85       |   | $ | 2.51 |   |
| March 31, 2005      |       | $                                        | 3.90       |   | $ | 2.57 |   |

 

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. SelectedFinancial Data.**

The following selectedconsolidated financial data should be read in conjunction with “Item 7—Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andthe consolidated financial statements and the notes thereto included elsewherein this Annual Report on Form 10-K.

**CONSOLIDATEDSTATEMENT OF OPERATIONS DATA:**

*(in thousands,except per share amounts)*

| ** **                                             | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                             | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Revenues:                                              |       |                                       |       |   |   |   |   |   |   |   |   |
| Transaction fees                                       |       | $                                          | 28,161     |   | $ | 24,650 |   | $ | 13,987 |   | $ | 23,192 |   | $ | 24,107 |   |
| Development and maintenance fees                       |       | 340                                        |       | 365 |   | 673 |   | 939 |   | 1,448 |   |
| Total revenues                                         |       | 28,501                                     |       | 25,015 |   | 14,660 |   | 24,131 |   | 25,555 |   |
| Operating expenses:                                    |       |                                       |       |   |   |   |   |   |   |   |   |
| Direct marketing                                       |       | 18,576                                     |       | 15,207 |   | 8,327 |   | 8,916 |   | 10,985 |   |
| Sales and marketing                                    |       | 7,512                                      |       | 6,770 |   | 5,541 |   | 7,095 |   | 7,344 |   |
| Technology                                             |       | 4,459                                      |       | 5,354 |   | 5,416 |   | 9,014 |   | 10,322 |   |
| General and administrative                             |       | 3,799                                      |       | 4,023 |   | 4,544 |   | 5,883 |   | 6,850 |   |
| Impairment of long-lived assets(1)                     |       | —                                     |       | — |   | — |   | 214 |   | 3,707 |   |
| Restructuring and other charges(2)                     |       | —                                     |       | — |   | — |   | — |   | 1,800 |   |
| Total operating  expenses                              |       | 34,346                                     |       | 31,354 |   | 23,828 |   | 31,122 |   | 41,008 |   |
| Loss from  operations                                  |       | (5,845                                     | )          | (6,339 | ) | (9,168 | ) | (6,991 | ) | (15,453 | ) |
| Interest expense                                       |       | —                                     |       | — |   | — |   | (86 | ) | (465 | ) |
| Interest and  other income, net(3)                     |       | 2,475                                      |       | 398 |   | 235 |   | 8,123 |   | 11,340 |   |
| Net income (loss)                                      |       | $                                          | (3,370     | ) | $ | (5,941 | ) | $ | (8,933 | ) | $ | 1,046 |   | $ | (4,578 | ) |
| Net income (loss)  per share:                          |       |                                       |       |   |   |   |   |   |   |   |   |
| Basic                                                  |       | $                                          | (0.82      | ) | $ | (1.40 | ) | $ | (1.90 | ) | $ | 0.21 |   | $ | (0.65 | ) |
| Diluted                                                |       | $                                          | (0.82      | ) | $ | (1.40 | ) | $ | (1.90 | ) | $ | 0.20 |   | $ | (0.65 | ) |
| Shares used in computing  net income (loss) per share: |       |                                       |       |   |   |   |   |   |   |   |   |
| Basic                                                  |       | 4,092                                      |       | 4,234 |   | 4,711 |   | 5,030 |   | 7,035 |   |
| Diluted                                                |       | 4,092                                      |       | 4,234 |   | 4,711 |   | 5,283 |   | 7,035 |   |

 

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(1)          Represents thewrite-down of long-lived assets related to the acquisition of certain assets ofIntuit Insurance Services, Inc.

(2)          Represents chargesrecorded pursuant to InsWeb’s restructuring plan and related vacatedfacilities.

(3)          In2003, the Company sold its interest in Finance All K.K. and recognized a gainof $6.8 million. Also in 2003, InsWeb and eHealthInsurance.com agreed tosettle ongoing litigation in the U.S. District Court for Northern California,and eHealthInsurance agreed to pay InsWeb $800,000 for the services performedby InsWeb prior to the termination of the marketing agreement. In 2002, InsWebrecognized a gain of $10.6 million from the renegotiation and amendment ofthe obligations under a license and distribution agreement, which was originallyentered into in 2001 in connection with the purchase of certain assets ofIntuit Insurance Services, Inc.

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**CONSOLIDATEDBALANCE SHEET DATA:**

*(in thousands)*

| ** **                       | ** ** | **As of December 31,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| ** **                       | ** ** | **2006**                              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Cash and cash  equivalents       |       | $                                     | 6,750      |   | $ | 9,073 |   | $ | 9,334 |   | $ | 15,223 |   | $ | 12,382 |   |
| Short-term  investments          |       | —                                |       | 1,233 |   | 8,145 |   | 10,868 |   | 16,541 |   |
| Working capital                  |       | 4,787                                 |       | 7,271 |   | 14,451 |   | 22,279 |   | 21,787 |   |
| Total assets                     |       | 10,456                                |       | 14,018 |   | 20,475 |   | 29,882 |   | 37,692 |   |
| Total stockholders’  equity |       | 5,291                                 |       | 8,141 |   | 15,715 |   | 24,279 |   | 27,088 |   |
|                                  |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operation.**

*This Annual Report on Form 10-K and inparticular Management’s Discussion and Analysis of Financial Condition andResults of Operations contains “forward-looking statements” with respectto InsWeb’s future financial performance. The words or phrases “expects,” “anticipates,”“intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressionsare generally intended to identify forward-looking statements. Suchforward-looking statements are subject to various known and unknown risksand uncertainties, and InsWeb cautions you that any forward-lookinginformation provided by, or on behalf of, InsWeb is not a guarantee of futureperformance. Actual results could differ materially from those anticipated insuch forward-looking statements due to a number of factors, some of whichare beyond InsWeb’s control, including, but not limited to, uncertain economicconditions which could result in continued decreases in revenue and reducedparticipation in InsWeb’s marketplace, anticipated losses, the unpredictabilityof future revenues, reliance on key customers—property and casualty insurancecarriers- who are themselves subject to volatility in their operatingcycles, competition, risks associated with system development and operationrisks, uncertainty regarding the costs and revenues associated with newinitiatives, management of potential growth and risks of new business areas,business combinations, and strategic alliances. These risks and uncertainties,as well as other risks and uncertainties, which are described in greater detailin “Item 1A. Risk Factors” and other documents filed with the Securities andExchange Commission, could cause InsWeb’s actual results to differ materiallyfrom historical results or those currently anticipated. All forward-lookingstatements are based on information available to InsWeb on the date hereof, andInsWeb assumes no obligation to update such statements.*

**Overview**

InsWeb operates an online insurance marketplace thatenables consumers to comparison shop online and to obtain insurance company-sponsoredquotes for a variety of insurance products, including automobile, homeownersand term life. InsWeb’s marketplace electronically matches consumers andinsurance providers. InsWeb has combined extensive knowledge of the insuranceindustry, technological expertise and close relationships with a significantnumber of insurance companies to develop an integrated online marketplace.

InsWeb’s principal source of revenues is transactionfees from participating insurance providers, either directly from an insurancecompany or from a local insurance agent. While quotes obtained through InsWeb’sonline insurance marketplace are provided to consumers free of charge, InsWebearns revenues from participating insurance companies or agents based on thedelivery of qualified leads. These fees are earned either from an insurancecompany based 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 a thirdparty insurance provider’s website. In these situations, the consumer willcomplete the third party company’s online application, and InsWeb will be paida fee for that consumer link or click-through.

A less significant and declining source of revenuesfor InsWeb are development and maintenance fees that are paid by insurancecompanies that participate on the InsWeb insurance marketplace. Developmentfees are generated from the design and development of customized interfacesbetween an insurance company’s information system and the InsWeb site. InsWebcharges maintenance fees for maintaining and servicing the programs of theindividual insurance companies and for maintaining any hardware at InsWeb’sfacility that is dedicated to specific insurance companies.

In 2004, InsWeb launched its term life agency businessin an effort to increase revenue per consumer within the term life marketplace.The conversion from a lead-based revenue model to a commission-based revenuemodel resulted in a delay in revenue recognition, as it typically takes 90 to120 days to complete the sales process for a term life policy. At the time theterm life agency business was launched, the Company was uncertain whether thetransaction data available was sufficient to reliably estimate 

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cancellations for purposesof satisfying the criteria in Statement of Financial Accounting Standards No. 48,“*Revenue Recognition When Right of Return Exists*,”for service transactions subject to customer cancellation privileges.Accordingly, during the initial deployment period of the commission-basedmodel, the Company recognized commission revenue on a ratable basis over theinitial term of the related policy as the cancellation privileges expired.Based on term life agency activity and cancellation data accumulated since thelaunch, management determined in early 2005 that it was appropriate to use thehistorical cancellation rate to estimate a cancellation allowance for term lifeagency transactions and the Company, therefore, now recognizes revenue from itsterm life agency business when commissions are earned, net of an estimate forfuture cancellations based on its historical cancellation rate.

Also in 2004, InsWeb launched its agent networkprogram which provides online auto insurance consumers access to localinsurance agents. Prior to September 2005, the agent network program wasconducted exclusively through an intermediary, NetQuote, Inc. During theyear ended December 31, 2006, NetQuote represented 19% of auto transactionfees, compared to 29% and 8% during the years ended December 31, 2005 and2004, respectively.

To lessen InsWeb’s reliance on this intermediary, andto maximize its revenue potential, InsWeb launched a proprietary agent networkprogram (“AgentInsider”) to provide leads directly to local insurance agentswho have registered with InsWeb. AgentInsider was launched in September 2005and complements the offering of our intermediary. As of December 31, 2006, 2,400 local personal lines insuranceagents were actively purchasing consumer leads through AgentInsider, representing17% of auto transaction fees. We expect that the agent network program,both through the intermediary and through our internally developed network,will continue to represent a significant percentage of auto transaction fees.

InsWeb has focused its efforts on developing insurancecompany coverage for automobile insurance in order to be able to offer truecomparative online shopping for this important segment of the insurance market.Automobile insurance accounted for approximately 76% of our transactionrevenues in 2006, approximately 79% in 2005 and approximately 77% in 2004. Weanticipate that automobile insurance will continue to account for a substantialportion of our revenues for the foreseeable future.

InsWeb has been dependent on a limited number ofinsurance companies for a majority of its automobile insurance transaction feerevenues, although recent expansion of InsWeb’s offering has reduced thatdependency to some extent. Revenues from NetQuote accounted for approximately17% of InsWeb’s total revenues for the year ended December 31, 2006, andapproximately 27% of InsWeb’s total revenues for the year ended December 31,2005. Revenues from Progressive accounted for approximately 10% of InsWeb’srevenues for the year ended December 31, 2004.

InsWeb has incurredoperating losses of $5.8 million in 2006, $6.3 million in 2005, and $9.2million in 2004, and as of December 31, 2006, our accumulated deficit was$192.0 million. In addition, InsWeb’s operating activities to datehave consumed substantial amounts of cash, cash equivalents and short-terminvestments ($3.6 million in 2006, $5.3 million in 2005, and $8.7 million in2004) and may continue to require capital in the near future. At December 31,2006, InsWeb had $6.8 million in cash and cash equivalents. The lossesand the related accumulated deficit are a result of the significant costsincurred in the development of InsWeb’s technology platform, the establishmentof relationships with insurance companies, their integration with the InsWeb site,and InsWeb’s marketing and sales activities. In order to remain competitive, theCompany must continue to make investments essential to its ability to operate,and InsWeb intends to continue to invest in product development andmaintenance, and sales and marketing. In addition, the Company will continue toincur the costs associated with continuing to function as a publicly listedcompany, including the costs of compliance with the provisions of theSarbanes-Oxley Act of 2002, among other things. As a result, InsWeb may incuroperating losses during 2007. In the event that InsWeb is unable to generaterevenues sufficient to offset its costs, or if its costs of marketing and 

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operations aregreater than it anticipates, the Company may be unable to grow its business atthe rate desired 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 ultimately achieveprofitability, the Company may need to seek additional financing to continueits business operations. The Company cannot be certain that additionalfinancing will be available when required, on favorable terms or at all. IfInsWeb is not successful in raising additional capital as required, it maydelay, significantly reduce or cease certain of its operations, which couldadversely affect its results of operations and financial position.

**Results ofOperations**

Thefollowing table sets forth statement of operations data with the respectivepercentage change from the prior year:

| ** **                       | ** ** | **Year ended December 31,** | ** ** | **Percentage  Change from  Prior Year** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                       | ** ** | **2006**                                   | ** ** | **2005**                                          | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues:                        |       |                                       |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| Transaction fees:                |       |                                       |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| Auto insurance                   |       | $                                          | 21,426     |                                              | $          | 19,556 |   | $ | 10,705 |   |   | 10 | % |   |   | 83 | % |   |
| Term life insurance              |       | 5,108                                      |       | 4,745                                             |       | 3,021 |   |   | 8 | % |   |   | 57 | % |   |
| Other insurance offerings        |       | 1,627                                      |       | 349                                               |       | 261 |   |   | 366 | % |   |   | 34 | % |   |
|                             |       | 28,161                                     |       | 24,650                                            |       | 13,987 |   |   | 14 | % |   |   | 76 | % |   |
| Development and maintenance fees |       | 340                                        |       | 365                                               |       | 673 |   |   | (7 | )% |   |   | (46 | )% |   |
| Total revenues                   |       | 28,501                                     |       | 25,015                                            |       | 14,660 |   |   | 14 | % |   |   | 71 | % |   |
| Operating  expenses:             |       |                                       |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| Direct marketing                 |       | 18,576                                     |       | 15,207                                            |       | 8,327 |   |   | 22 | % |   |   | 83 | % |   |
| Sales and marketing              |       | 7,512                                      |       | 6,770                                             |       | 5,541 |   |   | 11 | % |   |   | 22 | % |   |
| Technology                       |       | 4,459                                      |       | 5,354                                             |       | 5,416 |   |   | (17 | )% |   |   | (1 | )% |   |
| General and administrative       |       | 3,799                                      |       | 4,023                                             |       | 4,544 |   |   | (6 | )% |   |   | (11 | )% |   |
| Total operating  expenses        |       | 34,346                                     |       | 31,354                                            |       | 23,828 |   |   | 10 | % |   |   | 32 | % |   |
| Loss from operations             |       | $                                          | (5,845     | )                                                 | $          | (6,339 | ) | $ | (9,168 | ) |   | (8 | )% |   |   | (31 | )% |   |

 

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

| ** **                       | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:                        |       |                                       |       |   |   |   |   |
| Transaction fees:                |       |                                       |       |   |   |   |   |
| Auto insurance                   |       | 75.2                                       | %          | 78.2 | % | 73.0 | % |
| Term life insurance              |       | 17.9                                       | %          | 19.0 | % | 20.6 | % |
| Other insurance                  |       | 5.7                                        | %          | 1.3 | % | 1.8 | % |
| Development and maintenance fees |       | 1.2                                        | %          | 1.5 | % | 4.6 | % |
| Total revenues                   |       | 100.0                                      | %          | 100.0 | % | 100.0 | % |
| Operating expenses:              |       |                                       |       |   |   |   |   |
| Direct marketing                 |       | 65.2                                       | %          | 60.8 | % | 56.8 | % |
| Sales and marketing              |       | 26.4                                       | %          | 27.1 | % | 37.8 | % |
| Technology                       |       | 15.7                                       | %          | 21.4 | % | 36.9 | % |
| General and administrative       |       | 13.2                                       | %          | 16.0 | % | 31.0 | % |
| Total operating expenses         |       | 120.5                                      | %          | 125.3 | % | 162.5 | % |
| Loss from operations             |       | (20.5                                      | )%         | (25.3 | )% | (62.5 | )% |

 

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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**) | ** ** | ** **                                 | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Auto insurance transaction revenues                                      |       | $                                          | 21,426     |                                              | $          | 19,556 |   | $ | 10,705 |   |   | 10 | % |   |   | 83 | % |   |
| Number of consumers                                                      |       | 5,064                                      |       | 4,846                                             |       | 2,370 |   |   | 4 | % |   |   | 104 | % |   |
| Auto insurance  transaction fees per consumer                            |       | $                                          | 4.23       |                                              | $          | 4.04 |   | $ | 4.52 |   |   | 5 | % |   |   | (11 | %) |   |
|                                                                          |            |                                            |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Termlife marketplace metrics were as follows:

| ** **                                                                                             | ** ** | **Year ended December 31,** | ** ** | **Percentage  Change from  Prior Year** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands, except per consumer and per policy amounts**) | ** ** | ** **                                 | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Term life insurance transaction revenues                                                               |       | $                                          | 5,108      |                                              | $          | 4,745 |   | $ | 3,021 |   |   | 8 | % |   | 57 | % |
| Number of consumers                                                                                    |       | 287                                        |       | 306                                               |       | 325 |   |   | (6 | )% |   | (6 | )% |
| Term life  insurance transaction fees per consumer                                                     |       | $                                          | 17.80      |                                              | $          | 15.51 |   | $ | 9.30 |   |   | 15 | % |   | 67 | % |
| Number of closed term life policies                                                                    |       | 5,444                                      |       | 4,929                                             |       | 0 |   |   | 10 | % |   | n/m |   |
| Term life insurance  transaction fees per closed  term life policy                                |       | $                                          | 938        |                                              | $          | 958 |   | $ | 0 |   |   | (2 | )% |   | n/m |   |
|                                                                                                        |            |                                            |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Definitions:

| “Number of consumers”            | Represents a consumer who has started an InsWeb  application;                       |
|--------------------------------------------|-------------------------------------------------------------------------------------|
| “Transaction fees  per consumer” | Represents transaction  revenue earned per consumer who has started an application. |

*** ***

***Transaction Fees.******  ***Automobileinsurance transaction fees (consisting of lead fees, commissions and SponsoredWeb Link fees) increased to $21.4 million in 2006 from $19.6 million in2005. The 10% increase in transaction fees was attributable to a 4% increase inthe number of consumers shopping for automobile insurance on the InsWebplatform in 2006 compared to 2005 and a 5% increase in the revenue earned perconsumer in 2006 compared to 2005. Automobile insurance transaction feesincreased to $19.6 million in 2005 from $10.7 million in 2004. The 83%increase in transaction fees was primarily attributable to a 104% increase inthe number of consumers shopping for automobile insurance on the InsWebplatform in 2005 compared to 2004 as InsWeb significantly increased itsconsumer marketing efforts. Revenue per auto consumer decreased to $4.04 in2005 from $4.52 in 2004 primarily as a result of a lower rate of conversion ofconsumers who start an application and ultimately purchase a policy, as well asthe transition from our third party intermediary agent network to ourproprietary agent network, AgentInsider, which was launched in September 2005.

Management expects revenue per auto consumer toincrease throughout 2007 as AgentInsider expands with the addition of localinsurance agents, and the expansion of the Sponsored Web Link program.

Term life insurance transactionfees (consisting primarily of agency commissions and a limited amount oflead fees) increased 8% to $5.1 millionin 2006 from $4.7 million in 2005. The increase in revenues wasattributable to the 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. Term life insurance transaction feesincreased 57% 

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to$4.7 million in 2005 from $3.0 million in 2004. The increasein revenues reflected the completed transition of our term life agency to acommission-based revenue model, as discussed above. Revenue per term life consumer increased to $15.51 in 2005, compared to$9.30 in 2004.

For 2007, managementexpects revenue per term lifeconsumer to continue at approximately 2006 levels.

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 launch of our local agent networkprogram, AgentInsider, and the related marketing efforts to drive homeownersinsurance consumers to the InsWeb marketplace. Other insurance transaction fees were $0.3 million in both 2005 and2004. Management expects revenue from the homeowners insurancemarketplace to increase throughout 2007 as AgentInsider expands with theaddition of local insurance agents.

***Development and Maintenance Fees.******  ***Developmentand maintenance fees accounted for $0.3 million, or 1.2% of total revenuesin 2006, compared to $0.4 million, or 1.5%, of total revenues in 2005, and$0.7 million, or 4.6%, in 2004.

**Operating Expenses**

| ** **                  | ** ** | **Year ended December 31,** | ** ** | **Percentage  Change from  Prior Year** | ** ** |
|-----------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                  | ** ** | **2006**                                   | ** ** | **2005**                                          | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Operating  expenses:        |       |                                       |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| Direct marketing            |       | $                                          | 18,576     |                                              | $          | 15,207 |   | $ | 8,327 |   |   | 22 | % |   |   | 83 | % |   |
| Sales and marketing         |       | 7,512                                      |       | 6,770                                             |       | 5,541 |   |   | 11 | % |   |   | 22 | % |   |
| Technology                  |       | 4,459                                      |       | 5,354                                             |       | 5,416 |   |   | (17 | )% |   |   | (1 | )% |   |
| General and  administrative |       | 3,799                                      |       | 4,023                                             |       | 4,544 |   |   | (6 | )% |   |   | (11 | )% |   |
|                             |            |                                            |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**) | ** ** | ** **                                 | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Direct marketing  costs                                                                            |       | $                                          | 18,576     |                                              | $          | 15,207 |   | $ | 8,327 |   |   | 22 | % |   |   | 83 | % |   |
| Direct marketing  costs as a percent of transaction fees                                           |       | 66                                         | %          | 62                                                | %          | 60 | % |   | 6 | % |   |   | 3 | % |   |
| Number of  consumers                                                                               |       | 5,609                                      |       | 5,267                                             |       | 2,822 |   |   | 6 | % |   |   | 87 | % |   |
| Direct marketing  cost per consumer                                                                |       | $                                          | 3.31       |                                              | $          | 2.89 |   | $ | 2.95 |   |   | 15 | % |   |   | (2 | )% |   |
| Transaction fees per  consumer                                                                     |       | $                                          | 5.02       |                                              | $          | 4.68 |   | $ | 4.96 |   |   | 7 | % |   |   | (6 | )% |   |
|                                                                                                    |            |                                            |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

*** ***

***Direct Marketing.******  ***Directmarketing expenses consist of advertising, promotions and fees paid to onlinecompanies to drive consumer traffic to the InsWeb online marketplace. 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 the InsWeb 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. Direct marketing expensesincreased 22% to $18.6 million in 2006, compared to $15.2 million in2005. This increase in spending resulted in a 6% increase in consumer traffic,compared to 2005 levels. Direct marketing expense as a percent of transactionrevenues was 66% in 2006, compared to 62% in 2005. Direct marketing expensesincreased 83% to 

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$15.2 million in2005, compared to $8.3 million in 2004. This increase in spending drove an87% increase in consumer traffic, compared to 2004 levels. Direct marketingexpense as a percent of transaction revenues was 62% in 2005, compared to 60%in 2004.

The Company expects that for 2007, direct marketingcosts per consumer acquired, will remain at approximately 2006 levels; andwhile the amount of consumer traffic driven to the InsWeb marketplace isexpected to fluctuate during the year due to seasonality and the competitiveenvironment for online consumers, we expect that overall consumer traffic for2007 will be comparable to 2006 levels.

***Sales and Marketing.******  ***Sales andmarketing expenses consist primarily of payroll and related expenses, includingemployee benefits, facility costs, telecommunications and systems costs, forInsWeb’s sales and marketing personnel and the personnel and related costs forInsWeb’s insurance agency operations, which includes selling agents,underwriters, supervisors and customer service groups. Sales and marketingexpenses increased to $7.5 million in 2005 from $6.8 million in 2005,an 11% increase. This increase was a result of the expansion of the term lifeagency and the launch of the AgentInsider program (sales, customer support andagent marketing costs). Sales and marketing expenses increased to$6.8 million in 2005 from $5.5 million in 2004, a 22% increase. Thisincrease was a result of the expansion of the term life agency and the launchof the AgentInsider program (sales, customer support and agent marketingcosts). Sales and marketing expenses in 2007 are expected to remain at levelscomparable to 2006.

***Technology.******  ***Technologyexpenses consist primarily of payroll and related expenses, including employeebenefits, facility and systems costs, for product and site developmentpersonnel involved with the planning, design and implementation of carrierintegration to the InsWeb online insurance marketplace. Technology expensesdecreased to $4.4 million in 2006 from $5.4 million in both 2005 and 2004.This decrease was primarily due to a significant reduction in headcountcompleted in September 2006 related to the conclusion of various majortechnology initiatives. Technology expenses in 2007 are expected decline incomparison to 2006.

***General and Administrative.******  ***General andadministrative expenses consist primarily of payroll and related expenses,including employee benefits, facility costs, telecommunications and systemscosts, for InsWeb’s general management, administrative and accountingpersonnel, as well as other general corporate expenses. General andadministrative expenses decreased to $3.8 million in 2006 from$4.0 million in 2005 and $4.5 million in 2004. The decreases wereprimarily due to reductions in headcount. General and administrative expensesin 2007 are expected decline in comparison to 2006.

**Interest and OtherIncome, Net**

Interest and other income for 2006 was $2.5 millioncompared to $0.4 million in 2005. Included in other income was $2.0 millionrepresenting the gain recorded in connection with the sale of InsWeb InsuranceServices’ property and casualty agency book of business. This transactionclosed on April 28, 2006. Interest income represents income earned onInsWeb’s short-term investments. Interest and other income for 2005 was $0.4million compared to $0.2 million in 2004.

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**Critical AccountingPolicies**

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, 2006,total future obligations for these facilities amounted to $4.4 million; theseobligations are offset by total contractual future sublease income ofapproximately $3.7 million. Substantially all future sublease income isdue from a sublessee that is a technology company with a limited operatinghistory and, therefore, there are inherent risks and uncertainties associatedwith its future operations and its ability to discharge its obligations throughthe term of the sublease. In the event that the sublessee defaults on itscontractual obligations under the amended sublease, InsWeb would be responsiblefor making the required lease payments to the landlord through the remainingterm of the lease. In connection with this lease and other 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. Based on theseassumptions, the Company maintains an accrual for formerly occupied facilities.The remaining accrual for lease obligations of formerly occupied facilities was$1.6 million at December 31, 2006, compared to $1.9 million at December 31,2005. If these estimates or their related assumptions change in the future,InsWeb may be required to record a charge to increase its existing accrual.

***Contingencies.***   Asdiscussed in Note 5 of Notes to Condensed Consolidated Financial Statements in Part Iof this report, a class action lawsuit has been filed that alleges InsWebviolated certain federal securities laws at the time of its initial publicoffering. Although some claims against InsWeb in this class action have beendismissed and a settlement of these proceedings has been proposed andconditionally accepted, InsWeb cannot accurately predict the ultimate outcomeof this matter at this time and therefore, cannot estimate the range ofprobable loss, if any, due to the inherent uncertainties of litigation. InsWebbelieves it has meritorious defenses; however InsWeb cannot assure that it willprevail in this action. An unfavorable outcome could have a material adverseeffect on InsWeb’s financial condition, results of operations and cash flows.

***Stock-BasedCompensation.*****  **InsWebaccounts for stock-based compensation in accordance with Statement of FinancialAccounting Standards (SFAS) No. 123(R), *Share-BasedPayment*. Under the provisions of SFAS No. 123(R), stock-basedcompensation cost is generally estimated at the grant date based on the award’sfair value as calculated by the Black-Scholes-Merton (BSM) option-pricing modeland is recognized as expense over the requisite service period. The BSM modelrequires various highly judgmental assumptions including expected option life,volatility, and forfeiture rates. If any of the assumptions used in the BSMmodel change significantly, stock-based compensation expense may differmaterially in the future from that recorded in the current period. Seeadditional discussion in Note 3 of the Notes to Consolidated FinancialStatements.

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

The carrying value of ourdeferred tax assets, which was approximately $76 million at December 31,2006, is dependent upon our ability to generate sufficient future taxableincome. We have established a full valuation allowance against our net deferredtax assets for continuing operations 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. A review of all available positive and negativeevidence needs to be considered, including our past and future performance, themarket environment in which we operate, the utilization of tax attributes inthe past, and the length of carryforward periods and evaluation of potentialtax planning strategies. We expect to continue to maintain a full valuationallowance until an appropriate level of profitability is sustained or we areable to develop tax strategies that would enable us to conclude that it is morelikely than not that a portion of our deferred tax assets would be realizable. In addition, InsWeb’s ability to utilize its net operating losscarry forwards to offset future taxable income may be subject to restrictionsattributable to equity transactions that result in changes in ownership asdefined in the Tax Reform Act of 1986. These restrictions may significantlylimit, on an annual basis, InsWeb’s future use of its net operating loss carryforwards. The amount, if any, of such limitations has not yet been determined.

**Liquidity andCapital Resources**

Summarizedcash flow information is as follows (in thousands): 

| ** **                                       | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash used in  operating activities               |       | $                                          | (3,560     | ) | $ | (5,342 | ) | $ | (8,722 | ) |
| Cash provided by  investing activities           |       | 1,159                                      |       | 6,791 |   | 2,548 |   |
| Cash (used in) provided  by financing activities |       | 78                                         |       | (1,710 | ) | 285 |   |
|                                                  |            |                                            |            |  |  |  |  |  |  |  |

 

At December 31, 2006, InsWeb’s principal sourceof liquidity was $6.8 million in cash and cash equivalents. Sinceinception, InsWeb has financed its operations primarily through the sale ofpreferred and common stock.

In 2006, net cash used in operating activitiesprimarily consisted of InsWeb’s net loss, offset by non-cash share-basedcompensation of $0.4 million and depreciation of property and equipment of $0.2million. An increase in accounts receivable and reductions in accounts payableand accrued expenses increased the cash used by operations. In 2005, net cashused in operating activities primarily consisted of InsWeb’s net loss, offsetby non-cash depreciation and amortization of $0.5 million. Cash used inoperations in 2005 was reduced by an increase in accounts receivable and accruedexpenses, partially offset by an increase in accounts payable. In 2004, netcash used in operating activities primarily consisted of InsWeb’s net loss,partially offset by depreciation and amortization of $0.8 million. Adecrease in accrued expenses, offset by an increase in accounts payableaffected cash used in operations in 2004.

Net cash provided by investing activities in 2006resulted primarily from redemptions of short-term investments of$1.5 million. Net cash provided by investing activities in 2005 primarilyconsisted of net maturities of short-term investments of $6.9 million. Netcash provided by investing activities in 2004 primarily consisted of netmaturities of short-term investments of $2.7 million.

Net cash provided by financing activities in 2006resulted primarily from the proceeds from the issuance of common stock throughemployee stock plans. Net cash used in financing activities in 2005 

28

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resulted primarily fromthe repurchase of common stock for $1.7 million. Net cash provided by financingactivities in 2004 primarily represented proceeds from issuance of common stockthrough employee stock plans of $0.4 million, partially offset by repayment ofdebt of $0.1 million.

InsWeb leases its current office facilities undernon-cancelable operating leases, which expire at various dates through April 2011,including a 10-year lease agreement through 2011 for office space in theSacramento area which houses its corporate headquarters and agency operations.InsWeb has options to extend the lease at the end of the lease term, and hasthe right of first refusal on other office space in the complex. In addition,InsWeb has entered into various sublease arrangements associated withpreviously exited facilities that have terms extending through September 2008.

Aggregatecontractual cash obligations, net of contractual sublease income, as of December 31,2006 is summarized as follows (in thousands): 

| **Years ending December 31,** | ** ** | ** ** | ** ** | **Gross lease  commitments** | ** ** | **Sublease  income** | ** ** | **Net lease  commitment** | ** ** |
|----------------------------------------------|------------|------------|------------|-----------------------------------|------------|----------------------|------------|--------------------------------|------------|
| 2007                                         |       |       | $          | 3,483                             |       |                 | $          | (2,100                         | )          |   | $ | 1,383 |   |   |
| 2008                                         |       |       | 2,936      |                              |       | (1,615               | )          |                           | 1,321      |   |   |
| 2009                                         |       |       | 1,078      |                              |       | —               |       |                           | 1,078      |   |   |
| 2010                                         |       |       | 1,078      |                              |       | —               |       |                           | 1,078      |   |   |
| 2011                                         |       |       | 359        |                              |       | —               |       |                           | 359        |   |   |
| Thereafter                                   |       |       | —     |                              |       | —               |       |                           | —     |   |   |
|                                         |       |       | $          | 8,934                             |       |                 | $          | (3,715                         | )          |   | $ | 5,219 |   |   |

 

InsWeb subleases portions of the property InsWebformerly occupied as its headquarters in Redwood City. Under the terms of thesublease, as amended, the sublessee is obligated to rent the entire facilityfor the duration of InsWeb’s lease (through September 2008) and to pay allrent and operating expenses otherwise payable by InsWeb directly to thelandlord. Therefore, the sublease results in a reduction in InsWeb’scontractual lease commitments by $3.5 million, through the remainder ofthe lease. However, the sublessee is a technology company with a limitedoperating history and, therefore, there are inherent risks and uncertaintiesassociated with its future operations and its ability to discharge itsobligations through the term of the sublease. In the event that the sublesseedefaults on its contractual obligations under the sublease, InsWeb would beresponsible for making the required lease payments to the landlord through theremaining term of the lease. In connection with this lease and other leaseobligations for formerly occupied facilities, InsWeb must make assumptionsregarding the potential future sublease income relative to these facilities.These estimates and assumptions are affected by area-specific conditions suchas new commercial development, market occupancy rates and future market prices.If these estimates or their related assumptions change in the future, InsWebmay be required to record a charge to increase its existing accrual.

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

29

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**Recently IssuedAccounting Standards**

***Financial Accounting Standards Board Interpretation No. 48***

In July 2006, theFASB issued FASB Interpretation (“FIN”) No. 48, “*Accounting for Uncertainty in Income Taxes—AnInterpretation of FASB Statement No. 109.*” FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in financial statementsin accordance with Statement of Financial Accounting Standard No. 109, “*Accounting for Income Taxes.*” FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return and provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition. The provisions of FIN 48 are effective for fiscal years beginningafter December 15, 2006. As such, InsWeb is required to adopt FIN 48in the first quarter of 2007. InsWeb is evaluating what the impact the adoptionof FIN 48 will have on its financial statements.

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

InsWeb is exposed to financial market risks primarilydue to changes in interest rates. The fair value of InsWeb’s investmentportfolio or related income would not be significantly impacted by either a 10%increase or decrease in interest rates due mainly to the short-term nature ofthe major portion of InsWeb’s investment portfolio. InsWeb’s interest income issensitive to changes in the general level of U.S. interest rates, particularlysince all of our funds are invested in instruments with maturities currentlyless than one year. InsWeb’s policy is to limit the risk of principal loss and ensurethe safety of invested funds by limiting market and credit risk. Funds inexcess of current operating requirements are invested in obligations of theU.S. government and its agencies and investment grade obligations of state andlocal governments and large corporations.

Thetable below represents carrying amounts and related weighted average interestrates of InsWeb’s investment portfolio at December 31, 2006 (in thousands,except interest rates):

| Cash equivalents             |   | $      | 4,666  |   |
|------------------------------|--------|--------|--------|--------|
| Average interest  rate       |   | 5.3    | %      |
| Short-term  investments      |   | — |   |
| Average interest  rate       |   | — |   |
| Total investment  securities |   | $      | 4,666  |   |
| Average interest rate        |   | 5.3    | %      |

 

**Item 8. FinancialStatements and Supplementary Data.**

The Report of Independent Registered Public AccountingFirm, Consolidated Financial Statements and Notes to Consolidated FinancialStatements follow below on pages xx to xx.

30

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**INSWEB CORPORATION**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**
| Report of Independent  Registered Public Accounting Firm                                                          |   | F-2 |
|-------------------------------------------------------------------------------------------------------------------|--------|-----|
| Consolidated  Balance Sheets as of December 31, 2006 and 2005                                                |   | F-3 |
| Consolidated Statements of Operations for the years  ended December 31, 2006, 2005 and 2004                  |   | F-4 |
| Consolidated Statements of Stockholders’ Equity for  the years ended December 31, 2006, 2005   and 2004 |   | F-5 |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2006, 2005 and 2004                  |   | F-6 |
| Notes to Consolidated Financial Statements                                                                        |   | F-7 |

 

F-1

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**Report ofIndependent Registered Public Accounting Firm**

**The Board ofDirectors and Stockholders of InsWeb Corporation**

We have audited the accompanying consolidated balancesheets of InsWeb Corporation as of December 31, 2006 and 2005, and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the three years in the period ended December 31, 2006.Our audits also included the financial statement schedule listed in the Indexat Item 15(a) (2). These financial statements and schedule are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with thestandards 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. Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of InsWeb Corporation at December 31, 2006 and 2005, and theconsolidated results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2006, in conformity with U.S.generally accepted accounting principles. Also, in our opinion, the relatedfinancial statement schedule, when considered in relation to the basicfinancial statements taken as a whole, presents fairly in all material respectsthe 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 20, 2007    |   |                            |

 

F-2

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**INSWEB CORPORATIONCONSOLIDATED BALANCE SHEETS*(Amounts in thousands, except per share amounts)***

| ** **                                                                                                                                                                   | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **Assets**                                                                                                                                                                   |       |                  |       |   |   |
| Current assets:                                                                                                                                                              |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                                                    |       | $                     | 6,750      |   | $ | 9,073 |   |
| Short-term investments                                                                                                                                                       |       | —                |       | 1,233 |   |
| Accounts receivable, net of allowances of $12 at  2006 and $36 at 2005                                                                                                       |       | 2,804                 |       | 2,297 |   |
| Prepaid expenses and other current assets                                                                                                                                    |       | 398                   |       | 545 |   |
| Total current assets                                                                                                                                                         |       | 9,952                 |       | 13,148 |   |
| Property and  equipment                                                                                                                                                      |       | 389                   |       | 524 |   |
| Other assets                                                                                                                                                                 |       | 115                   |       | 346 |   |
| Total assets                                                                                                                                                                 |       | $                     | 10,456     |   | $ | 14,018 |   |
| **Liabilities  and stockholders’ equity**                                                                                                                               |       |                  |       |   |   |
| Current liabilities:                                                                                                                                                         |       |                  |       |   |   |
| Accounts payable                                                                                                                                                             |       | $                     | 2,248      |   | $ | 2,655 |   |
| Accrued expenses                                                                                                                                                             |       | 2,672                 |       | 3,094 |   |
| Deferred revenue                                                                                                                                                             |       | 245                   |       | 128 |   |
| Total current liabilities                                                                                                                                                    |       | 5,165                 |       | 5,877 |   |
| Commitments and  contingencies                                                                                                                                               |       |                  |       |   |   |
| Stockholders’ equity:                                                                                                                                                   |       |                  |       |   |   |
| Convertible preferred stock, $0.001 par value.  Authorized: 5,000 shares; no shares issued or outstanding at 2006 and 2005                                                   |       | —                |       | — |   |
| Common stock, $0.001 par value. Authorized: 25,000  shares; 7,338 shares issued and 4,114 shares outstanding at 2006, and 7,301  shares issued and 4,077 outstanding at 2005 |       | 7                     |       | 7 |   |
| Paid-in capital                                                                                                                                                              |       | 203,578               |       | 203,059 |   |
| Treasury stock, 3,224 shares at 2006 and 2005                                                                                                                                |       | (6,334                | )          | (6,334 | ) |
| Accumulated other comprehensive loss                                                                                                                                         |       | —                |       | (1 | ) |
| Accumulated deficit                                                                                                                                                          |       | (191,960              | )          | (188,590 | ) |
| Total stockholders’ equity                                                                                                                                              |       | 5,291                 |       | 8,141 |   |
| Total liabilities  and stockholders’ equity                                                                                                                             |       | $                     | 10,456     |   | $ | 14,018 |   |

 

See accompanying notes.

F-3

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**INSWEB CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS*(Amounts in thousands, except per shareamounts)***

| ** **                                    | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:                                     |       |                                        |       |   |   |   |   |
| Transaction fees                              |       | $                                           | 28,161     |   | $ | 24,650 |   | $ | 13,987 |   |
| Development and maintenance fees              |       | 340                                         |       | 365 |   | 673 |   |
| Total revenues                                |       | 28,501                                      |       | 25,015 |   | 14,660 |   |
| Operating expenses:                           |       |                                        |       |   |   |   |   |
| Technology                                    |       | 4,459                                       |       | 5,354 |   | 5,416 |   |
| Sales and marketing                           |       | 26,088                                      |       | 21,977 |   | 13,868 |   |
| General and administrative                    |       | 3,799                                       |       | 4,023 |   | 4,544 |   |
| Total operating expenses                      |       | 34,346                                      |       | 31,354 |   | 23,828 |   |
| Loss from  operations                         |       | (5,845                                      | )          | (6,339 | ) | (9,168 | ) |
| Interest and  other income, net               |       | 2,475                                       |       | 398 |   | 235 |   |
| Net loss                                      |       | $                                           | (3,370     | ) | $ | (5,941 | ) | $ | (8,933 | ) |
| Net loss per  share:                          |       |                                        |       |   |   |   |   |
| Basic                                         |       | $                                           | (0.82      | ) | $ | (1.40 | ) | $ | (1.90 | ) |
| Diluted                                       |       | $                                           | (0.82      | ) | $ | (1.40 | ) | $ | (1.90 | ) |
| Shares used in  computing net loss per share: |       |                                        |       |   |   |   |   |
| Basic                                         |       | 4,092                                       |       | 4,234 |   | 4,711 |   |
| Diluted                                       |       | 4,092                                       |       | 4,234 |   | 4,711 |   |

 

See accompanying notes.

F-4

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**INSWEBCORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYYears ended December 31, 2006, 2005 and 2004*(Amounts in thousands, except per shareamounts)***

| ** **                                                                          | ** ** | ** **            | ** ** | ** **  | ** ** | ** **              | ** ** | ** **                    | ** ** | ** **      | ** ** | **Accumulated** | ** ** | ** **        | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|-------------------------|------------|-------------------------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|------------|------------|
| ** **                                                                          | ** ** | ** **            | ** ** | ** **  | ** ** | ** **              | ** ** | ** **                    | ** ** | ** **      | ** ** | ** Other** | ** ** | ** **        | ** ** | ** ** | ** ** |
| ** **                                                                          | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Treasury Stock** | ** ** | ** Comprehensive ** | ** ** | **Accumulated** | ** ** | ** **      | ** ** |
| ** **                                                                          | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**             | ** ** | **Shares**                    | ** ** | **Amount**      | ** ** | **Loss**        | ** ** | ** Deficit** | ** ** | **Total**  | ** ** |
| Balances,  December 31, 2003                                                   |       |                  | 7,113      |        |       |                    | $          | 7                             |       |            | $          | 202,584         |       | (2,468            | )          | $          | (4,596     | ) |   | $ | — |   |   |   | $ | (173,716 | ) |   | $ | 24,279 |   |
| Issuance of shares  through employee stock purchase plan and stock option plan |       |                  | 144        |        |       |                    | —     |                          |       | 377             |       | —          |       | —            |       |       | —     |   |   |   | — |   |   | 377 |   |
| Comprehensive loss:                                                                 |       |                  |       |        |       |                    |       |                          |       |            |       |            |       |              |       |       |       |   |   |   |   |   |   |   |   |
| Change in unrealized loss on investments                                            |       |                  | —     |        |       |                    | —     |                          |       | —          |       | —          |       | —            |       |       | (8         | ) |   |   | — |   |   | (8 | ) |
| Net loss                                                                            |       |                  | —     |        |       |                    | —     |                          |       | —          |       | —          |       | —            |       |       | —     |   |   |   | (8,933 | ) |   | (8,933 | ) |
| Comprehensive loss                                                                  |       |                  | —     |        |       |                    | —     |                          |       | —          |       | —          |       | —            |       |       | —     |   |   |   | — |   |   | (8,941 | ) |
| 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 |   |

 

See accompanying notes.

F-5

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**INSWEB CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWSINCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS*(Amounts in thousands)***

| ** **                                                                   | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash flows from  operating activities:                                       |       |                                        |       |   |   |   |   |
| Net loss                                                                     |       | $                                           | (3,370     | ) | $ | (5,941 | ) | $ | (8,933 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                        |       |   |   |   |   |
| Share-based compensation.                                                    |       | 431                                         |       | — |   | — |   |
| Other income                                                                 |       | —                                      |       | — |   | 70 |   |
| Depreciation and amortization                                                |       | 210                                         |       | 534 |   | 831 |   |
| Net changes in  operating assets and liabilities:                            |       |                                        |       |   |   |   |   |
| Accounts receivable                                                          |       | (507                                        | )          | (1,272 | ) | (19 | ) |
| Prepaid expenses and other current assets                                    |       | 147                                         |       | 162 |   | 78 |   |
| Other assets                                                                 |       | 231                                         |       | (12 | ) | 48 |   |
| Accounts payable                                                             |       | (407                                        | )          | 1,407 |   | 724 |   |
| Accrued expenses                                                             |       | (412                                        | )          | (292 | ) | (1,302 | ) |
| Deferred revenue                                                             |       | 117                                         |       | 72 |   | (219 | ) |
| Net cash used in operating activities                                        |       | (3,560                                      | )          | (5,342 | ) | (8,722 | ) |
| Cash flows from  investing activities:                                       |       |                                        |       |   |   |   |   |
| Redemptions of short-term investments                                        |       | 1,462                                       |       | 13,718 |   | 30,995 |   |
| Purchases of short-term investments                                          |       | (228                                        | )          | (6,799 | ) | (28,305 | ) |
| Purchases of property and equipment                                          |       | (75                                         | )          | (128 | ) | (142 | ) |
| Net cash provided by investing activities                                    |       | 1,159                                       |       | 6,791 |   | 2,548 |   |
| Cash flows from  financing activities:                                       |       |                                        |       |   |   |   |   |
| Proceeds from issuance of common stock through stock  plans                  |       | 88                                          |       | 98 |   | 402 |   |
| Repurchases of common stock                                                  |       | —                                      |       | (1,738 | ) | — |   |
| Repayment of debt                                                            |       | (10                                         | )          | (70 | ) | (117 | ) |
| Net cash provided by (used in) financing activities                          |       | 78                                          |       | (1,710 | ) | 285 |   |
| Net decrease in  cash and cash equivalents                                   |       | (2,323                                      | )          | (261 | ) | (5,889 | ) |
| Cash and cash  equivalents, beginning of year                                |       | 9,073                                       |       | 9,334 |   | 15,223 |   |
| Cash and cash  equivalents, end of year                                      |       | $                                           | 6,750      |   | $ | 9,073 |   | $ | 9,334 |   |

 

See accompanying notes.

F-6

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**INSWEB CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1. Business ofInsWeb**

InsWeb Corporation operates an online insurancemarketplace that enables consumers to comparison shop online and to obtaininsurance company-sponsored quotes for a variety of insurance products,including automobile, homeowners and term life. InsWeb’s marketplaceelectronically matches consumers and insurance providers. InsWeb’s marketplaceenables consumers to research insurance-related topics, search for,analyze and compare insurance products, apply for and to receive insurancecompany-sponsored quotes for coverage for automobile, homeowners and termlife insurance.

InsWeb’s principal source of revenues is transactionfees from participating insurance providers, either directly from an insurancecompany or from a local insurance agent. While quotes obtained through InsWeb’sonline insurance marketplace are provided to consumers free of charge, InsWebearns revenues from participating insurance companies or agents based on thedelivery of qualified leads. These fees are earned, generally, from thedelivery of a lead to a participating insurance provider or local agent. In certain instances, consumers areprovided the opportunity to link directly to a third party insurance provider’swebsite. In these situations, the consumer will complete the third partycompany’s online application, and InsWeb will be paid a fee for that consumerlink or click-through.

InsWeb is subject to all of the risks inherent in theelectronic commerce industry and special risks related to the online insuranceindustry. These risks include, but are not limited to, uncertain economicconditions which could result in lower growth rates, the changing nature of theelectronic commerce industry, variations in the availability and cost ofacquiring consumer traffic, unpredictability of future revenues, reliance onkey customers—insurance carriers, agents and other providers—who are themselvessubject to volatility in their operating cycles, and reliance on a third partyintermediary who provides leads to local insurance agents on InsWeb’s behalf.These risks and uncertainties, among others, could cause InsWeb’s actualresults to differ materially from historical results or those currentlyanticipated. In light of the evolving nature of InsWeb’s business to bettercapitalize on its position as a leading insurance portal, including the currentexpansion of InsWeb’s agent network program, InsWeb believes thatperiod-to-period comparisons of its operating results are not necessarilymeaningful and should not be relied upon as an indication of futureperformance. Moreover, there is no assurance that InsWeb will be able toachieve or sustain profitability.

InsWeb has incurredoperating losses of $5.8 million in 2006, $6.3 million in 2005, and $9.2million in 2004, and as of December 31, 2006, our accumulated deficit was$192.0 million. In addition, InsWeb’s operating activities to datehave consumed substantial amounts of cash, cash equivalents and short-terminvestments ($3.6 million in 2006, $5.3 million in 2005, and $8.7 million in2004) and may continue to require capital in the near future. At December 31,2006, InsWeb had $6.8 million in cash and cash equivalents. The lossesand the related accumulated deficit are a result of the significant costsincurred in the development of InsWeb’s technology platform, the establishmentof relationships with insurance companies, their integration with the InsWebsite, and InsWeb’s marketing and sales activities. In order to remain competitive, theCompany must continue to make investments essential to its ability to operate,and InsWeb intends to continue to invest in product development andmaintenance, and sales and marketing. In addition, the Company will continue toincur the costs associated with continuing to function as a publicly listedcompany, including the costs of compliance with the provisions of theSarbanes-Oxley Act of 2002, among other things. As a result, InsWeb may incuroperating losses during the next year. In the event that InsWeb is unable togenerate revenues sufficient to offset its costs, or if its costs of marketingand operations are greater than it anticipates, the Company may be unable togrow its business 

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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 ultimately achieveprofitability, the Company may need to seek additional financing to continueits business operations. The Company cannot be certain that additionalfinancing will be available when required, on favorable terms or at all. IfInsWeb is not successful in raising additional capital as required, it maydelay, significantly reduce or cease certain of its operations, which couldadversely affect its results of operations and financial position.

**2. Summary ofSignificant Accounting Policies**

***Basis of presentation***

The consolidated financialstatements include the accounts of InsWeb Corporation and its wholly-ownedsubsidiaries, InsWeb Insurance Services, Inc. and Goldrush InsuranceServices, Inc. (“InsWeb” or the “Company”). All significant inter-companyaccounts and transactions have been eliminated in the consolidated financialstatements.

***Use of estimates***

The preparation offinancial statements in conformity with United States generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

***Cash, cash equivalents and short-term investments***

InsWeb considers allhighly liquid investments with original maturities of three months or less atthe date of purchase to be cash equivalents. Investments with maturitiesgreater than three months at the date of purchase but less than one year areclassified as short-term investments. Cash and cash equivalents are stated atcost, which approximates fair value, given the relatively short duration of theunderlying securities.

***Revenue recognition***

The Company recognizes revenue when (i) persuasiveevidence of an arrangement between the Company and the customer exists, (ii) deliveryof the product to the customer has occurred or service has been provided to thecustomer, (iii) the price to the customer is fixed or determinable and (iv) collectabilityof the sales price is reasonably assured.

Transaction fee revenue from consumer leads, for bothauto insurance and term life insurance, is recognized when such lead (either asa consumer click-through or after completion of the InsWeb application)is delivered to a participating insurance company. Transaction fee revenue fromclosed policies is recognized in the period that the insurance company has soldan insurance policy from a qualified consumer lead.

InsWeb agency commissionrevenue is based on a percentage of the insurance policy premium related toeach insurance policy sale where InsWeb has acted as the agent. Agencycommission revenue is recognized on the effective date of the policy, less anestimate for early cancellations of the underlying insurance policies.

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

InsWeb’s marketing strategy is designed to increaseconsumer traffic to its website and to drive awareness of its insuranceproducts and services. The Company employs various means of advertising, whichconsist primarily of online advertising, sponsored search, portal advertising,e-mail campaigns and strategic partnerships with high-profile online companiesthat can drive significant traffic to its site. Fees related to the Company’sonline marketing are expensed in the period the related consumer click-throughoccurs or in some cases, when the consumer leads are generated. Fixed feepayments, which are part of certain strategic partnership agreements, aregenerally expensed on a straight-line basis over the term of the agreement, orratably based on delivery of the specified consumer traffic targets, whichevermethod results in a greater expense during the period. Online advertisingpayments based on per unit transactions are expensed in the period in which theconsumer traffic occurred and are included in direct marketing expense.

Costs related toadvertising and promotions of products are charged to sales and marketingexpense as incurred. Direct marketing expense for the years ended December 31,2006, 2005 and 2004 were $18,576,000, $15,207,000, and $8,327,000,respectively.

***Property and equipment and other long-lived assets***

Property and equipment are stated at cost lessaccumulated depreciation. Depreciation on computer and office equipment,furniture and fixtures and purchased software is calculated using thestraight-line method over the estimated useful lives of the assets, generallytwo to five years. Amortization on leasehold improvements is calculated usingthe straight-line method over the estimated useful lives of the improvements orthe remaining term of the lease, whichever is shorter. Expenditures formaintenance and repairs are charged to expense as incurred.

InsWeb evaluates therecoverability of its long-lived assets in accordance with Statement of FinancialAccounting Standard No. 144, “*Accounting for theImpairment 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***

Financial instruments that potentially subject InsWebto concentrations of credit risk, as defined by Statement of FinancialAccounting Standard No. 105, “*Disclosure of Informationabout Financial Instruments with Off-Balance-Sheet Risk and FinancialInstruments with Concentrations of Credit Risk*,” consist principallyof cash, cash equivalents, short-term investments and accounts receivable.InsWeb deposits its cash and cash equivalents with various domestic financialinstitutions. Such deposits may exceed federal deposit insurance limits.

InsWeb’s investments consist of diversified investmentgrade securities. InsWeb’s investment policy limits the amount of creditexposure to investments in any one issue, and InsWeb believes no significantconcentration of credit risk exists with respect to these investments.

InsWeb’s customer base isdispersed across many different geographic areas, and most customers are in theinsurance industry in the United States. Collection of trade receivables may beaffected by changes in economic or other industry conditions and may,accordingly, impact InsWeb’s overall credit risk. InsWeb performs ongoingcredit evaluations of its customers and generally does not require collateral.InsWeb reviews the need for allowances for potential credit losses based onhistorical losses, and records a provision when collectability is uncertain.The Company has not experienced significant credit losses to 

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date.Generally, receivables are due 30 days from the invoice date and areconsidered past due after this date.

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

For the year ended December 31,2006, two customers (NetQuote and AIG) accounted for 17% and 10% of totalrevenues, respectively. For the year ended December 31, 2005, one customer(NetQuote) accounted for 27% of total revenues. For the year ended December 31,2004, one customer (Progressive) accounted for 10% of total revenues. At December 31,2006, two customers (AIG, and NetQuote) accounted for 18%, and 12% of accountsreceivable, respectively. At December 31, 2005, three customers (AIG,GEFA, and NetQuote) accounted for 24%, 11%, and 11% of accounts receivable,respectively.

***Net loss per share***

Basic net loss per shareis computed using the weighted-average number of shares of common stockoutstanding. Diluted earnings per share is a measure of the potential dilutionthat would occur if stock options and warrants had been exercised. Potentiallydilutive securities have been excluded from the computation of diluted net lossper share, as their effect would be antidilutive, for all periods presented.

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

| ** **                                                      | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| *(In thousands, except per share  amounts)*                     | * *   | * *                                   | * *   | * * | * * | * * | * * |
| Numerator for basic and  diluted net loss per share:            |       |                                       |       |   |   |   |   |
| Net loss available to common stockholders                       |       | $                                          | (3,370     | ) | $ | (5,941 | ) | $ | (8,933 | ) |
| Denominator for net loss  per share:                            |       |                                       |       |   |   |   |   |
| Basic—weighted average shares of common stock  outstanding |       | 4,092                                      |       | 4,234 |   | 4,711 |   |
| Dilutive effect of employee stock options                       |       | —                                     |       | — |   | — |   |
| Diluted                                                         |       | 4,092                                      |       | 4,234 |   | 4,711 |   |
| Net loss per  share:                                            |       |                                       |       |   |   |   |   |
| Basic—as reported                                          |       | $                                          | (0.82      | ) | $ | (1.40 | ) | $ | (1.90 | ) |
| Diluted—as  reported                                       |       | $                                          | (0.82      | ) | $ | (1.40 | ) | $ | (1.90 | ) |

 

Potentially dilutivesecurities that are not included in the diluted net loss calculation becausethey would be antidilutive are employee stock options to purchase sharestotaling 970,000 as of December 31, 2006, 679,000 as of December 31,2005, and 273,000 as of December 31, 2004.

***Other comprehensive loss***

Other comprehensive lossincludes changes in unrealized gains (losses) on investments.

***Segment information***

InsWeb operates in onesegment, business-to-consumer electronic insurance services. InsWeb markets itsonline marketplace in the United States. The Chief Executive Officer has beenidentified as the Chief Operating Decision Maker because he has final authorityover resource allocation decisions and performance assessment.

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***Recently issued accounting standards***

**FinancialAccounting Standards Board Interpretation No. 48**

In July 2006, theFASB issued FASB Interpretation (“FIN”) No. 48, “*Accounting for Uncertainty in Income Taxes—AnInterpretation of FASB Statement No. 109.*” FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in financial statementsin accordance with Statement of Financial Accounting Standard No. 109, “*Accounting for Income Taxes.*” FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return and provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition. The provisions of FIN 48 are effective for fiscal years beginningafter December 15, 2006. As such, InsWeb is required to adopt FIN 48in the first quarter of 2007. InsWeb is evaluating what the impact the adoptionof FIN 48 will have on its financial statements.

**3. Share-BasedPayments**

In July 1997, InsWeb authorized the 1997 StockOption Plan (the “Option Plan”) and the Senior Executive Option Plan (the “ExecutivePlan”). Under the Option Plan, the Board of Directors may issue incentive stockoptions to employees of InsWeb and its subsidiaries and may also issuenonqualified stock options to employees, officers, directors, independentcontractors and consultants of InsWeb and its subsidiaries. Under the ExecutivePlan, the Board of Directors may issue nonqualified stock options to employees,officers and directors of InsWeb and its subsidiaries. In May 2003, theOption Plan was amended, with stockholder approval, to provide that eachdirector would receive a fully-vested option to purchase 5,000 shares ofcommon stock on July 1st (or the firstbusiness day thereafter) of each year in which the director remains in office.The Option Plan provides for an automatic annual increase in the share reserve,to be effective on the first day of each fiscal year, by a number of sharesequal to 5% of the number of common shares outstanding as of the last day ofthe preceding fiscal year. Options granted under both plans are priced at thefair market value on the date of grant and prior to January 1, 2006generally 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 Compensation Committeeof the Board of Directors of InsWeb approved the acceleration of vesting of allstock options outstanding as of October 19, 2005 held by employees. Optionsto purchase approximately 496,000 shares of common stock, or 33% of the totaloutstanding options, with varying remaining vesting schedules, were subject tothe acceleration and became immediately exercisable. All other terms andconditions applicable to such options, including the exercise prices, remainedunchanged.

F-11

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Optionsoutstanding and currently exercisable by exercise price at December 31,2006 are as follows:

| ** **                                                            | ** ** | **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                                                           |       |                         | 139        |                                        |       |   | 4.78 |   |   |   | 139 |   |   |   | $ | 2.02 |   |   |
| $2.05-$2.05                                                           |       |                         | 536        |                                        |       |   | 5.06 |   |   |   | 379 |   |   |   | $ | 2.05 |   |   |
| $2.30-$2.79                                                           |       |                         | 271        |                                        |       |   | 7.19 |   |   |   | 250 |   |   |   | $ | 2.75 |   |   |
| $2.80-$3.25                                                           |       |                         | 230        |                                        |       |   | 8.07 |   |   |   | 230 |   |   |   | $ | 3.01 |   |   |
| $3.26-$4.85                                                           |       |                         | 203        |                                        |       |   | 6.38 |   |   |   | 203 |   |   |   | $ | 4.45 |   |   |
| $4.86-$6.30                                                           |       |                         | 455        |                                        |       |   | 5.58 |   |   |   | 455 |   |   |   | $ | 5.18 |   |   |
| $6.31-$270.00                                                         |       |                         | 89         |                                        |       |   | 3.26 |   |   |   | 89 |   |   |   | $ | 51.53 |   |   |
|                                                                  |       |                         | 1,923      |                                        |       |   | 5.88 |   |   |   | 1,745 |   |   |   | $ | 5.90 |   |   |
|                                                                       |            |                              |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

InsWeb has an Employee Stock Purchase Plan (the “PurchasePlan”) under which eligible employees may authorize payroll deductions of up to15% of their compensation to purchase shares at 85% of the lower of the fairmarket value of the common stock on the date of commencement of the offering oron the last day of the six-month purchase period. During 2006, 2005 and 2004,8,246, 8,373 and 7,574 shares respectively, were distributed to employees atprices ranging from $1.99 per share to $4.54 per share. The weighted averagefair value of the 2006, 2005 and 2004 awards were $2.26, $2.48 and $3.85 pershare, respectively. At December 31, 2006, InsWeb had 323,000 shares ofits common stock reserved for future issuance under the Purchase Plan. Thenumber of shares of common stock issuable under the 1999 Plan is increased by50,000 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 a straight-linebasis over the requisite service period of the award. All options issuedprior to January 1, 2006 were fully vested at the date of adoption of SFAS123(R), and therefore, no compensation expense was recognized for these optionsfor the year ended December 31, 2006

Thefollowing table sets forth the total share-based compensation expense resultingfrom stock options and the Purchase Plan included in the Company’s operatingexpenses in its condensed consolidated statements of operations for the yearended December 31, 2006 (in thousands):

| Sales and marketing                    |   | $   | 126    |   |
|----------------------------------------|--------|-----|--------|--------|
| Technology                             |   | 32  |   |
| General and administrative             |   | 273 |   |
| Total share-based compensation expense |   | $   | 431    |   |

 

Priorto the adoption of SFAS 123(R), InsWeb accounted for its stock-based compensationplans under the recognition and measurement principles of APB Opinion No. 25,“Accounting for Stock Issued to Employees,” and related interpretations. Thefollowing table illustrates the effect on net loss and net 

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loss per share if InsWeb had applied the fair valuerecognition provisions of Financial Accounting Standards Board Statements No. 123“Accounting for Stock-Based Compensation” and No. 148, “Accounting forStock-Based Compensation-Transition and Disclosure*,*” to share-based employee compensation for the years ended December 31,2006, 2005 and 2004 (in thousands, except per share amounts):

| ** **                                                                                         | ** ** | **Year Ended  December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                         | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Net loss, as  reported                                                                             |       | $                                      | (5,941     | ) | $ | (8,933 | ) |
| Deduct: Stock  based compensation expense determined under fair value based method for all  awards |       | (1,009                                 | )          | (586 | ) |
| Pro forma net  loss                                                                                |       | $                                      | (6,950     | ) | $ | (9,519 | ) |
| Net loss per share:                                                                                |       |                                   |       |   |   |
| Basic—as reported                                                                             |       | $                                      | (1.40      | ) | $ | (1.90 | ) |
| Basic—pro forma                                                                               |       | $                                      | (1.64      | ) | $ | (2.02 | ) |
| Share-based compensation  expense included in the determination of net loss, as reported           |       | $                                      | —     |   | $ | — |   |

 

Thefair value of stock-based awards granted pursuant to the Company’s stock optionplans was estimated using the Black-Scholes model with the followingassumptions for the years ended December 31, 2006, 2005 and 2004:

| ** **                                 | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Expected term (in  years)                  |       | 3.68                                       |       | 4.78 |   | 4.76 |   |
| Expected  volatility                       |       | 0.72                                       |       | 0.58 |   | 0.57 |   |
| Risk-free  interest rate                   |       | 4.0                                        | %          | 4.0 | % | 3.3 | % |
| Expected dividend                          |       | —                                     |       | — |   | — |   |
| Weighted-average fair  value at grant date |       | $                                          | 1.17       |   | $ | 1.51 |   | $ | 2.28 |   |
|                                            |            |                                            |            |  |  |  |  |  |  |  |

 

***Expected term.***   Theexpected term represents the period that the Company’s stock-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” method, the expected term is calculated byadding the vesting term to the contractual term of the option grant and dividingthe total by two. This simplified method is permitted until such time as moredetailed information about exercise behavior is known.

***Expectedvolatility.***   The Company uses the tradinghistory of its common stock in determining an estimated volatility factor whenusing the Black-Scholes option-pricing formula to determine the fair value ofoptions granted.

***Risk-free interestrate.***   The Company bases the risk-freeinterest rate used in the Black-Scholes valuation method on the implied yieldcurrently available on U.S. Treasury zero-coupon issues with the same orsubstantially equivalent remaining term.

***Expected dividend.******  ***The Company has not declareddividends to date. Therefore, the Company uses a zero value for the expecteddividend value factor when using the Black-Scholes option-pricing formula todetermine the fair value of options granted.

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***Estimatedforfeitures.***   SFAS 123(R) requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from initial estimates. Whenestimating forfeitures, the Company considers historical voluntary andinvoluntary termination behavior as well as analysis of actual optionforfeitures.

Activityunder all of the Company’s stock option plans is as follows:

| ** **                                                               | ** ** | **Shares Available  for Grant** | ** ** | **Shares  Outstanding** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------|------------|------------------------------------------------|------------|
| *(in thousands, except exercise price amounts)* |       |                                      |       |                    |       |                                           |       |   |   |   |   |   |   |
| Balances,  December 31, 2003                                        |       |                                      | 365        |                    |       |                                           | 1,731      |   |   |   | $ | 14.62 |   |   |
| Additional shares  reserved                                              |       |                                      | 232        |                    |       |                                           | —     |   |   |   | — |   |   |
| Granted                                                                  |       |                                      | (271       | )                       |       |                                           | 271        |   |   |   | $ | 4.51 |   |   |
| Exercised                                                                |       |                                      | —     |                    |       |                                           | (137       | ) |   |   | $ | 2.55 |   |   |
| Canceled/forfeited                                                       |       |                                      | 721        |                    |       |                                           | (721       | ) |   |   | $ | 22.94 |   |   |
| 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 |   |   |

 

The aggregate intrinsic values of options outstandingand exercisable at December 31, 2006, 2005 and 2004 were $739,000,$460,000 and $103,000, respectively. Aggregate intrinsic value represents thetotal intrinsic value (the aggregate difference between the closing stock priceof the Company’s common stock on December 31, 2006, 2005 and 2004 and theexercise price for in-the-money options) that would have been received by theoption holders if all options had been exercised on December 31, 2006,2005 and 2004 respectively. The total intrinsic value of options exercised forthe years ended December 31, 2006, 2005 and 2004 were $15,000, $38,000 and$162,000, respectively. The weighted-average remaining contractual terms ofoptions outstanding and exercisable at December 31, 2006, 2005 and 2004were 6.01, 7.46 and 7.76 years, respectively.

As of December 31, 2006, there was $265,000 inunrecognized compensation cost for all stock options outstanding that wereunvested. This amount is expected to be recognized over the weighted-averageperiod of 1.7 years. The Company’s current practice is to issue new shares tosatisfy share option exercises.

Cash received from stock option exercises andpurchases under the Purchase Plan for December 31, 2006, 2005 and 2004were $88,000, $98,000 and $405,000 respectively.

There was no tax benefitattributable to options exercised in the three months and year ended December 31,2006.

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**4.  Consolidated Financial Statement Details**

***Cash, cash equivalents and short-term investments***

Cash and cash equivalentsconsist of the following (in thousands):

| ** **              | ** ** | **December 31,** | ** ** |
|-------------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Cash                    |       | $                     | 2,084      |   | $ | 1,164 |   |
| Money market  funds     |       | 603                   |       | 448 |   |
| Commercial paper        |       | 2,393                 |       | 4,215 |   |
| U.S. Agency  securities |       | 1,670                 |       | 3,246 |   |
|                    |       | $                     | 6,750      |   | $ | 9,073 |   |

 

InsWeb accounts for its short-term investments underStatement of Financial Accounting Standards No. 115, “*Accountingfor Certain Investments 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’sinvestment portfolio consists of the following (in thousands):

| ** **               | ** ** | **December 31,** | ** ** |
|--------------------------|------------|-----------------------|------------|
| ** **               | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Available-for-sale:      |       |                  |       |   |   |
| Money market  funds      |       | $                     | 603        |   | $ | 448 |   |
| Certificates of  deposit |       | —                |       | 306 |   |
| Commercial paper         |       | 2,393                 |       | 4,364 |   |
| Corporate bonds          |       | —                |       | 606 |   |
| U.S. Agency  securities  |       | 1,670                 |       | 3,418 |   |
|                     |       | $                     | 4,666      |   | $ | 9,142 |   |
| Cash equivalents         |       | $                     | 4,666      |   | $ | 7,909 |   |
| Short-term  investments  |       | —                |       | 1,233 |   |
|                     |       | $                     | 4,666      |   | $ | 9,142 |   |

 

At December 31, 2006 and 2005, the carrying valueof available-for sale securities is shown net of gross unrealized losses of $0and $1,000, respectively, which are included as a component of stockholders’equity, and are attributable to InsWeb’s investments in commercial paper andother debt securities. At December 31, 2006, the contractual maturities ofInsWeb’s investment portfolio are less than one year. The gains and losses fromthe sale of available-for-sale securities have not been significant to date.

F-15

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***Prepaid expenses and other current assets***

Prepaidexpenses and other current assets consist of the following (in thousands):

| ** **        | ** ** | **December 31,** | ** ** |
|-------------------|------------|-----------------------|------------|
| ** **        | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Prepaid insurance |       | $                     | 174        |   | $ | 227 |   |
| Other             |       | 224                   |       | 318 |   |
|              |       | $                     | 398        |   | $ | 545 |   |

 

***Property and equipment***

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

| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Computer and  office equipment |       | $                     | 4,693      |   | $ | 4,643 |   |
| Furniture and  fixtures        |       | 1,009                 |       | 999 |   |
| Leasehold  improvements        |       | 687                   |       | 687 |   |
| Software                       |       | 3,242                 |       | 3,242 |   |
|                           |       | 9,631                 |       | 9,571 |   |
| Less accumulated  depreciation |       | (9,242                | )          | (9,047 | ) |
|                           |       | $                     | 389        |   | $ | 524 |   |

 

Depreciation expense was $210,000, $418,000, and$715,000 for the years ended December 31, 2006, 2005 and 2004,respectively.

***Other assets***

Otherassets consist of the following (in thousands):

| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Deposits for  operating leases |       | $                     | 113        |   | $ | 332 |   |
| Other                          |       | 2                     |       | 14 |   |
|                           |       | $                     | 115        |   | $ | 346 |   |

 

***Accrued expenses***

Accruedexpenses consist of the following (in thousands):

| ** **                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Accrued employee  compensation          |       | $                     | 495        |   | $ | 586 |   |
| Deferred rent                           |       | 463                   |       | 527 |   |
| Accrued lease  obligations (see Note 5) |       | 1,563                 |       | 1,874 |   |
| Other                                   |       | 151                   |       | 107 |   |
|                                    |       | $                     | 2,672      |   | $ | 3,094 |   |

 

***Stockholders’ Equity—Negotiated Common StockRepurchases***

In March 2005, theBoard of Directors authorized management to repurchase 755,821 shares of InsWebcommon stock, consisting of 531,947 shares held by Nationwide Mutual InsuranceCompany and 223,874 shares held by Century Capital Partners, L.P. These sharesrepresented 16% of InsWeb’s total 

F-16

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outstandingcommon stock at that date and were purchased for $1,738,000, or $2.30 pershare. Subsequent to the closing of these transactions, Nationwide Mutual andCentury Capital held no shares.

**5.  Commitments and Contingencies**

***Leases***

InsWeb leases its current office facilities undernon-cancelable operating leases, which expire at various dates through April 2011,including a 10-year lease agreement through 2011 for office space in theSacramento area which houses its corporate headquarters and agency operations.InsWeb has options to extend the lease at the end of the lease term, and hasthe right of first refusal on other office space in the complex. In addition,InsWeb has entered into various sublease arrangements associated withpreviously exited facilities that have terms extending through September 2008.

Netcontractual lease commitments as of December 31, 2006 are summarized asfollows (in thousands):

| **Years ending December 31,** | ** ** | ** ** | ** ** | **Gross lease  commitments** | ** ** | **Sublease  income** | ** ** | **Net lease  commitment** | ** ** |
|----------------------------------------------|------------|------------|------------|-----------------------------------|------------|----------------------|------------|--------------------------------|------------|
| 2007                                         |       |       | $          | 3,483                             |       |                 | $          | (2,100                         | )          |   | $ | 1,383 |   |   |
| 2008                                         |       |       | 2,936      |                              |       | (1,615               | )          |                           | 1,321      |   |   |
| 2009                                         |       |       | 1,078      |                              |       | —               |       |                           | 1,078      |   |   |
| 2010                                         |       |       | 1,078      |                              |       | —               |       |                           | 1,078      |   |   |
| 2011                                         |       |       | 359        |                              |       | —               |       |                           | 359        |   |   |
| Thereafter                                   |       |       | —     |                              |       | —               |       |                           | —     |   |   |
|                                         |       |       | $          | 8,934                             |       |                 | $          | (3,715                         | )          |   | $ | 5,219 |   |   |

 

Rent expense for the years ended December 31,2006, 2005, and 2004 was $1,010,000, $999,000, and $990,000 (net of subleaserental income of $2,030,000, $1,961,000, and $1,983,000), respectively.

Security deposits payable (under sublease agreements)as of December 31, 2006 and 2005 was $21,000.

One of InsWeb’s operating leases is for a 65,000square foot building in Redwood City, California. Under the terms of thesublease of this facility, as amended, the sublessee is obligated to rent theentire facility for the duration of the InsWeb lease (through September 2008)and to pay all rent and operating expenses otherwise payable by InsWeb directlyto the landlord. Therefore, the sublease results in a reduction in InsWeb’scontractual lease commitments of $3,483,000, through the remainder of thelease. However, the sublessee is a technology company with limited operatinghistory and, therefore, there are inherent risks and uncertainties associatedwith its future operations and its ability to discharge its obligations throughthe term of the sublease. In the event that the sublessee defaults on itsobligations under the sublease, InsWeb would be responsible for making therequired lease payments to the landlord through the remaining term of thelease.

In connection with this lease and other leaseobligations for formerly occupied facilities, InsWeb must make assumptionsregarding the potential future sublease income relative to these facilities.These estimates and assumptions are affected by area-specific conditions suchas new commercial development, market occupancy rates and future market prices.Based on these assumptions, the Company maintains an accrual for formerlyoccupied facilities. The remaining accrual for lease obligations of formerlyoccupied facilities was $1,563,000 at December 31, 2006. If theseestimates or their related assumptions change in the future, InsWeb may berequired to record a charge to increase its existing accrual.

F-17

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***Securities classaction lawsuit***

A securities class actionlawsuit was filed on December 5, 2001 in the United States District Courtfor the Southern District of New York, (the “Court”) purportedly on behalf ofall persons who purchased our common stock from July 22, 1999 through December 6,2000. The complaint named as defendants InsWeb, certain current and formerofficers and directors, and three investment banking firms that served asunderwriters for InsWeb’s initial public offering in July 1999. Thecomplaint, as subsequently amended, alleges violations of Sections 11 and 15 ofthe Securities Act of 1933 and Sections 10 and 20 of the Securities ExchangeAct of 1934, on the grounds that the prospectuses incorporated in theregistration statements for the offering failed to disclose, among otherthings, that (i) the underwriters had solicited and received excessive andundisclosed commissions from certain investors in exchange for which theunderwriters allocated to those investors material portions of the shares ofour stock sold in the offerings and (ii) the underwriters had entered intoagreements with customers whereby the underwriters agreed to allocated sharesof the stock sold in the offering to those customers in exchange for which thecustomers agreed to purchase additional shares of InsWeb stock in theaftermarket at pre-determined prices. No specific damages are claimed. Similarallegations have been made in lawsuits relating to more than 300 other initialpublic offerings conducted in 1999 and 2000, all of which have beenconsolidated for pretrial purposes. In October 2002, all claims againstthe individual defendants were dismissed without prejudice. In February 2003,the Court dismissed the claims in the InsWeb action alleging violations of theSecurities Exchange Act of 1934 but allowed the plaintiffs to proceed with theremaining claims. In June 2003, the plaintiffs in all of the casespresented a settlement proposal to all of the issuer defendants. Under theproposed settlement, the plaintiffs will dismiss and release all claims againstparticipating defendants in exchange for a contingent payment guaranty by theinsurance companies collectively responsible for insuring the issuers in allthe related cases, and the assignment or surrender to the plaintiffs of certainclaims the issuer defendants may have against the underwriters. InsWeb and mostof the other issuer defendants have accepted the settlement proposal. On April 24,2006, a hearing was held to consider final approval of the settlement; theCourt’s ruling on final approval of the settlement remains pending. If theCourt does not approve the settlement, InsWeb intends to defend the lawsuitvigorously. The litigation and settlement process is inherently uncertain andwe cannot predict the outcome, though, if unfavorable, it could have a materialadverse effect on InsWeb’s financial condition, results of operations and cashflows.

**6.  Income Taxes**

As of December 31,2006 and 2005, InsWeb had net operating loss carry forwards of approximately$189,000,000 and $185,000,000 for federal income tax purposes and $127,000,000and $117,000,000 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 have begun to expire in 2006. InsWeb’sability to utilize its net operating loss carry forwards to offset futuretaxable 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 significantly limit, on an annual basis,InsWeb’s future use of its net operating loss carry forwards. The amount, ifany, of such limitations has not yet been determined.

The components of the netdeferred tax assets and liabilities are presented below (in thousands):

| ** **                        | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Net operating loss carry forwards |       | $                     | 71,632     |   | $ | 69,728 |   |
| Tax credit carry forwards         |       | 1,228                 |       | 1,228 |   |
| Accruals and allowances           |       | 8,120                 |       | 8,304 |   |
| Other                             |       | (5,359                | )          | (5,052 | ) |
|                              |       | 75,621                |       | 74,208 |   |
| Less valuation allowance          |       | (75,621               | )          | (74,208 | ) |
| Net deferred tax asset            |       | $                     | —     |   | $ | — |   |

 

F-18

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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, 2006, 2005 and 2004 increased by$1,413,000, $3,762,000 and $3,758,000, respectively. Deferred tax assetsrelating to net operating loss carry forwards for federal and state purposes asof December 31, 2006 and 2005 include approximately $2,700,000 and $3,140,000 associated with stockcompensation activity, respectively, 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 to the valuation allowance establishedto offset the deferred tax assets. The provision for income taxes is differentthan the amount computed using the applicable statutory federal income tax ratewith the difference for each year summarized below:

| ** **                                       | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Federal tax  (benefit) at statutory rate         |       |                  | 34         | % |   |   | 34 | % |   |   | 34 | % |   |
| State taxes, net  of federal benefit             |       |                  | —     | % |   |   | — | % |   |   | — | % |   |
| Adjustment due to  change in valuation allowance |       |                  | (34        | )% |   |   | (34 | )% |   |   | (34 | )% |   |
| Provision for income  taxes                      |       |                  | 0          | % |   |   | 0 | % |   |   | 0 | % |   |

 

**7.  Employee Benefit Plan**

InsWeb has a definedcontribution plan offered to all eligible employees, which is qualified undersection 401(k) of the Internal Revenue Code. InsWeb will match 50% ofthe first 6% of elective contributions made by each qualifying employee. Eachparticipant is 100% vested in elective contributions and is incrementallyvested one-third at the end of each of three consecutive years of service inemployer contributions. Employer contributions for the years ended December 31,2006, 2005 and 2004 were $119,000, $151,000, and $161,000 respectively.

**8.  QuarterlyFinancial Information (unaudited)**

| ** **                                                                           | ** ** | **Quarter ended** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|
| ***(amounts in thousands, except per share amounts)*** | ** ** | **Mar. 31**       | ** ** | **Jun. 30** | ** ** | **Sept. 30** | ** ** | **Dec. 31** | ** ** |
| **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 | ) |
| **Fiscal  2005:**                                                                    |       |                   |       |   |   |   |   |   |   |
| Total revenues                                                                       |       | $                      | 5,694      |   | $ | 6,604 |   | $ | 6,898 |   | $ | 5,819 |   |
| Operating expenses                                                                   |       | 7,206                  |       | 7,776 |   | 8,370 |   | 8,002 |   |
| Loss from operations                                                                 |       | (1,512                 | )          | (1,172 | ) | (1,472 | ) | (2,183 | ) |
| Other income (expense), net                                                          |       | 92                     |       | 96 |   | 101 |   | 109 |   |
| Net loss                                                                             |       | $                      | (1,420     | ) | $ | (1,076 | ) | $ | (1,371 | ) | $ | (2,074 | ) |
| Net loss per  share—basic and diluted                                           |       | $                      | (0.30      | ) | $ | (0.27 | ) | $ | (0.34 | ) | $ | (0.51 | ) |

 

F-19

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**Item 9. Changes inand Disagreements With Accountants on Accounting and Financial Disclosure.**

None.

**Item 9A. Controlsand Procedures.**

**(a)****        *****Evaluation of disclosurecontrols and procedures***. Under the supervision and with theparticipation of our management, including our principal executive officer andprincipal financial officer, we evaluated the effectiveness of our disclosurecontrols and procedures, as such term is defined under Rule 13a-15(e) and15d-15(e) promulgated under the Securities Exchange Act of 1934, asamended. Based upon that evaluation, our principal executive officer andprincipal financial officer concluded that our disclosure controls andprocedures were effective as of the end of the period covered by this annualreport.

**(b)****        *****Changes in internalcontrol over financial reporting.*** There has been no change inthe Company’s internal control over financial reporting during the quarterended December 31, 2006 that has materially affected, or is reasonablylikely to affect, the Company’s internal control over financial reporting.

**Item 9B. OtherInformation.**

None.

**PART III**

The SEC allows us toinclude information required in this report by referring to other documents orreports we have already filed or will soon be filing. This is called “incorporationby reference.” We intend to file our definitive proxy statement pursuant toRegulation 14A not later than 120 days after the end of the fiscalyear covered by this report, and certain information therein is incorporated inthis report by reference.

**Item 10. Directorsand Executive Officers of the Registrant.**

The information required by this Item is incorporatedby reference to information set forth in our definitive proxy statement underthe heading “Management.”

The information required by this Item with respect tocompliance with Section 16(a) of the Securities Exchange Act of 1934is incorporated by reference to information set forth in our definitive proxystatement under the heading “Section 16(a) Beneficial OwnershipReporting Compliance.”

The information requiredby this Item with respect to our code of ethics is incorporated by reference toinformation set forth in our definitive proxy statement under the heading “ProposalNo. 1—Election of Directors—Committee Charters and other Corporate GovernanceMaterials.”

**Item 11. ExecutiveCompensation.**

The information requiredby this Item is incorporated by reference to information set forth in ourdefinitive proxy statement under the heading “Executive Compensation and OtherMatters.”

**Item 12. Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters.**

The information requiredby this Item is incorporated by reference to information set forth in ourdefinitive proxy statement under the heading “Stock Ownership of CertainBeneficial Owners and Management.”

31

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**Item 13. CertainRelationships and Related Transactions.**

The information requiredby this Item is incorporated by reference to information set forth in ourdefinitive proxy statement under the heading “Certain Relationships and RelatedTransactions.”

**Item 14. PrincipalAccountant Fees and Services**

The information requiredby this Item is incorporated by reference to information set forth in ourdefinitive proxy statement under the heading “Principal Accountant Fees and Services.”

**PART IV**

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

**(a)****        **The following documents are filed as partof this Form:

1.                 FinancialStatements:

|                                                          | ** ** | **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.                 FinancialStatement Schedules:

The followingfinancial statement schedule of InsWeb Corporation for the years ended December 31,2006, 2005 and 2004 is filed as part of this report and should be read inconjunction with the consolidated financial statements of InsWeb Corporation.

Schedule   II—Valuationand Qualifying Accounts

Other scheduleshave been omitted because the required information is not present or notpresent in amounts sufficient to require submission of the schedules or becausethe information required is included in the consolidated financial statementsor notes thereto.

3.                 Exhibits:

See Index to Exhibits. The Exhibits listed in theaccompanying Index are filed as part of this report.

32

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934 the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on March 30, 2007.
|        | INSWEB CORPORATION |
|--------|--------------------|
|   | By:                | /s/**WILLIAM D. GRIFFIN |
|   |               | William D. Griffin |
|   |               | *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    |       | March 30,  2007 |
| Hussein  A. Enan           |          | Officer                                       |       |                 |
| /s/ WILLIAM D.  GRIFFIN    |          | Chief Financial  Officer                      |       | March 30,  2007 |
| William  D. Griffin        |          | (Principal Financial and  Accounting Officer) |       |                 |
| /s/ JAMES M.  CORROON      |          | Vice Chairman of  the Board                   |       | March 30,  2007 |
| James  M. Corroon          |          |                                          |       |                 |
| /s/ DENNIS H.  CHOOKASZIAN |          | Director                                      |       | March 30,  2007 |
| Dennis  H. Chookaszian     |          |                                          |       |                 |
| /s/ THOMAS W.  ORR         |          | Director                                      |       | March 30,  2007 |
| Thomas  W. Orr             |          |                                          |       |                 |
| /s/ ROBERT A.  PUCCINELLI  |          | Director                                      |       | March 30,  2007 |
| Robert A.  Puccinelli      |          |                                          |       |                 |

 

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**INSWEB CORPORATIONEXHIBITS TO FORM 10-K ANNUAL REPORTFOR THE YEAR ENDED DECEMBER 31, 2006**
| 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†     |       | InsWeb Services  Agreement by and between Registrant and NetQuote, Inc., dated as of  September 26, 2006.(8)                                       |
| 14.1            |       | Code of Business Conduct  and Ethics.(6)                                                                                                                     |
| 21.1            |       | Subsidiaries of  Registrant.(9)                                                                                                                              |
| 23.1            |       | Consent of Independent  Registered Public Accounting Firm.(9)                                                                                                |
| 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.(9) |
| 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.(9) |
| 32.1            |       | Certification of Chief  Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C.  Section 1350.(9)                                     |

----

(1)          Incorporated byreference to identically numbered exhibit to Registrant’s RegistrationStatement on Form S-1 (File No. 333-78095), as amended(the “Form S-1”).

(2)          Incorporated byreference to Exhibit 2.3 to Registrant’s Current Report on Form 8-Kfiled on February 8, 2002.

(3)          Incorporated byreference to Exhibit 10.23 to Registrant’s Quarterly Report on Form 10-Qfor the quarter ended September 30, 2000.

(4)          Incorporated by referenceto identically numbered exhibit to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2002.

(5)          Incorporated byreference to Exhibit 10.13 to Registrant’s Quarterly Report on Form 10-Qfor the three months ended June 30, 2004.

34

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(6)          Incorporated byreference to identically numbered exhibit to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2003.

(7)          Incorporated byreference to identically numbered exhibit to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2005.

(8)          Incorporated byreference to identically numbered exhibit to Registrant’s Quarterly Report on Form 10-Qfor the three months ended September 30, 2006.

(9)          Filed herewith.

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

*                    Constitutes amanagement contract or a compensatory plan or arrangement.

35

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**INSWEBCORPORATIONSCHEDULE IIVALUATION AND QUALIFYING ACCOUNTSYears ended December 31, 2005, 2004 and 2003**

| **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, 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 |   |   |
| Year ended  December 31, 2004: |       |       |       |                                           |       |                                          |       |                                 |       |           |       |                                     |       |   |   |   |   |   |   |
| Allowance for doubtful  accounts    |       |       | $          | 47,000                                         |       |                                          |       | $                                    | —     |           |       |                                     | $          | — |   |   | $ | (20,000) |   |   | $ | 27,000 |   |   |

 

36

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