**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**
| **(Mark One)** |
|----------------|
| x              | ** ** | **Annual report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934 for the fiscal year ended  December 31, 2005** |
| **or**         |
| o              | ** ** | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934 for the transition period from         to       ** |

 

**Commission File Number 0-26083**

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**INSWEB CORPORATION**

(Exact name of registrantas specified 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 o   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 o   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 o

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 o   Accelerated Filer o    Non-Accelerated Filer x

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

The aggregate market valueof registrant’s voting and non-voting common equity held by non-affiliates ofregistrant, 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, 2005), as reported on the Nasdaq National Market, wasapproximately $6,823,000. 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 of affiliatestatus is not necessarily a conclusive determination for other purposes.

Outstanding shares of registrant’s common stock, $0.001par value, as of March 1, 2006: 4,086,794

**DOCUMENTS INCORPORATED BYREFERENCE**

Partsof the definitive Proxy Statement for registrant’s 2006 Annual Meeting ofStockholders to be filed with the Commission pursuant to Regulation 14Anot later than 120 days after the end of the fiscal year covered by thisReport are incorporated by reference into Part III of this Form 10-KReport.

 

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**INSWEB CORPORATION**

**Annual Report on Form 10-KFor the Fiscal Year Ended December 31, 2005**

**Table of Contents**
| **PART I**                                    |
|----------------------------------------------------|
| Item 1.                                            |   | Business |   | 2 |
| Item  1A.                                          |   | Risk Factors |   | 12 |
| Item 1B.                                           |   | Unresolved Staff Comments |   | 19 |
| Item 2.                                            |   | Properties |   | 19 |
| Item  3.                                           |   | Legal  Proceedings |   | 20 |
| Item 4.                                            |   | Submission of Matters to a Vote of Security Holders |   | 21 |
| **PART II**                                   |
| Item 5.                                            |   | Market for Registrant’s Common Equity and Related  Stockholder Matters |   | 21 |
| Item 6.                                            |   | Selected Financial Data |   | 22 |
| Item 7.                                            |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations  |   | 24 |
| Item 7A.                                           |   | Quantitative and Qualitative Disclosures About Market  Risk |   | 33 |
| Item 8.                                            |   | Consolidated Financial Statements and Supplementary  Data |   | 34 |
| Item 9.                                            |   | Changes in and Disagreements With Accountants on  Accounting and Financial Disclosure |   | 35 |
| Item 9A.                                           |   | Controls and Procedures |   | 35 |
| Item  9B.                                          |   | Other  Information |   | 35 |
| **PART III**                                  |
| Item 10.                                           |   | Directors and Executive Officers of the Registrant |   | 35 |
| Item 11.                                           |   | Executive Compensation |   | 35 |
| Item 12.                                           |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters    |   | 36 |
| Item 13.                                           |   | Certain Relationships and Related Transactions |   | 36 |
| Item 14.                                           |   | Principal Accountant Fees and Services |   | 36 |
| **PART IV**                                   |
| Item 15.                                           |   | Exhibits and Financial Statement Schedules |   | 36 |
| Signatures                                         |   | 37 |
| Exhibit Index                                      |   | 38 |
| Schedule II—Valuation and Qualifying Accounts |   | 40 |

 

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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 companies 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 the section in Item 1A “RiskFactors.”*

*The list of factors that may affect future performanceand the accuracy of forward-looking statements described in the section “RiskFactors” in Item 1A of this Report is illustrative, but by no meansexhaustive. Additional risk factors may be described from time to time in ourfuture filings with the U.S. Securities and Exchange Commission.Accordingly, all forward-looking statements should be evaluated with theunderstanding of their inherent uncertainty. All such risk factors are difficultto predict, contain material uncertainties that may affect actual results andmay 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.*All periodic and current reports that have been filed with, or furnished to,the SEC are available on our website within 24 hours of the electronicfiling.

**TheInsWeb Online Insurance 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 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 

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earned either from aninsurance company based on a closed policy, from the delivery of a lead to aparticipating insurance provider or local agent, or from a commission earned byInsWeb’s insurance agency subsidiary, InsWeb Insurance Services, Inc. (“InsWeb’s Insurance Agency”). In certaininstances, consumers are provided the opportunity to link directly to a thirdparty insurance provider’s website (“Sponsored Web Link” program). In thesesituations, the consumer will complete the third party company’s onlineapplication, and InsWeb will be paid a fee for that consumer link orclick-through.

InsWeb’s business model has evolved significantly overthe past two years to better capitalize on its position as a leading insuranceportal. Within InsWeb’s auto insurance marketplace, consumers now haveadditional options to find the insurance carrier or local personal linesinsurance agent best suited to their needs as a result of several initiativesimplemented by InsWeb during 2004 and 2005. These auto product initiativesincluded: the expansion of the InsWeb Sponsored Web Link program, which provides certain consumers the opportunity tolink directly to an insurance company’s website; a shortened onlineapplication; the distribution of consumer leads to multiple insurance carriers;the launch of a program through a third party intermediary to provide consumerleads to local personal lines insurance agents; and the successful developmentand deployment of InsWeb’s proprietary agent network, AgentInsider.com, whichwas launched in September 2005.

In addition, InsWeb laidthe foundation to achieve increased revenue from each consumer within its termlife marketplace through the launch of its term life agency in August 2004and the shift from a lead referral model to a commission-based revenue model,which the management believes will offer greater long-term financial benefit.

**The QuoteGeneration and Purchase Process**

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

·       dataentry by the consumer;

·       electronicunderwriting;

·       electronicrating and generation of price quotes;

·       presentationof quotes to the consumer;

·       deliveryof leads to participating insurance companies, local agents and/or InsWeb’sInsurance Agency;

·       purchaseof the insurance policy; and

·       customerservice and customer care.

***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 particulartype of insurance, but may receive quotes from multiple participating companiesdepending on which companies have qualified that consumer. This information canalso be used to automatically complete portions of the quote form for otherinsurance products. Because the information insurance companies use tounderwrite, rate and provide quotes to a consumer is entered directly by theconsumer, the insurance companies can reduce 

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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’ssoftware uses criteria set by each participating insurance company to analyze aconsumer’s data and determine whether it fits within the insurance company’stargeted risk profile. InsWeb’s system can provide rapid feedback to aninsurance company regarding the impact that particular criteria are having onthe number of leads being directed to that company, and also permits individualcriteria to be easily added or removed. Electronic underwriting eliminates theexpense of screening and quoting risks that an insurance company ultimately maynot want to accept. Electronic underwriting also ensures that consumers areonly presented with quotes from companies who are interested in doing businesswith them.

***Rating.******  ***InsWebintegrates each of its participating insurance companies’ rating criteria intoits online marketplace through one of several rating solutions, depending onthe insurance company’s preference. These solutions include:

·       acustomized interface between InsWeb’s site and the insurance company’s ownrating engine;

·       anintegration of the insurance company’s rating criteria into an InsWebmaintained rating engine.

In each case, the rating process is developed inconjunction with the participating insurance company.

***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 companies interested in providingquotes, and in some cases the rates charged by the insurance companies are alsodisplayed. When rates are not displayed, the quote pad also informs theconsumer which insurance companies will provide quotes on a delayed basis,either via e-mail or telephone. The response method varies among insuranceproducts and companies.

***Delivery of Leads.******  ***InsWeb earns revenues from participating insuranceproviders based on the delivery of qualified leads. With its instantquoting auto insurance companies, InsWeb is paid a fee only when the consumerpurchases an insurance policy. With other auto insurance providers (includinginsurance companies, third party local agent networks and InsWeb’s AgentInsidernetwork, which provides leads directly to local personal lines insuranceagents), InsWeb is paid a transaction fee based on the delivery of a lead,whether or not the consumer actually purchases a policy. For auto insurancecoverage, qualified leads are produced when a consumer clicks to view insurancecompany quotes. These leads are produced both for insurance companies providinginstant online quotes and for insurance companies and local insurance agentswho provide email or other offline quotes. For term life insurance coverage, a qualified lead is produced only when a consumerclicks to request insurance coverage based on a specific quote. Once theleads are generated by the consumer’s request to view quotes, InsWeb transmitsthe leads either to InsWeb’s Insurance Agency or to the selected insurancecompany or other entity by e-mail, file transfer or direct connection to theinsurance company’s information system. InsWeb provides each participatinginsurance company with custom-formatted lead information based on the insurancecompany’s individual requirements.

***Purchase of Policy.******  ***After InsWebgenerates and delivers a qualified lead, insurance providers, or InsWeb’sInsurance Agency, may respond directly to the interested consumer by e-mail ortelephone to close the purchase of the policy or direct the lead to an agentfor follow-up. The delivery of a qualified lead to the insurance company orlocal agent does not require further involvement by InsWeb, although InsWebmonitors insurance company responses and works with companies and agents toensure that they are responding to leads generated from the online insurancemarketplace in a timely fashion. In addition, InsWeb performs closing services,through InsWeb’s Term Life insurance agency, for participating 

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insurance companies. Theseclosing services include advising consumers about coverage options, confirmingconsumer information, selling the policy and taking a premium deposit.

***Customer Care.******  ***InsWebprovides assistance to consumers throughout the data entry, quote-generationand delivery process through embedded help icons, which link to explanations ofthe various steps in the process. InsWeb’s Customer Care Center providesadditional help to consumers working through the process of shopping forinsurance through live telephone support.

**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.

**Products and Services**

Insurance companies participating in InsWeb’s onlineinsurance marketplace currently offer automobile, homeowners, term life, renters,and condominium insurance. In addition, InsWeb has contractual relationshipswith third-party providers for home warranty, RV, motorcycle, criticalillness 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, 2005, InsWeb’s online marketplace offeredquotes or web-sponsored links to consumers in all 50 states, plus the Districtof Columbia.

***Term Life Insurance.******  ***At December 31,2005, the InsWeb online marketplace offered comparative quotes for term lifeinsurance from 14 companies in all 50 states, plus the District of Columbia.

***Other Products and Services.******  ***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.

**Insurance Company Relationships**

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, 2005, InsWeb had relationships with 34insurance companies for automobile, homeowners and term life insurance,including many large companies with established brand names that InsWeb 

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believesare attractive to consumers. However, InsWeb has been dependent on a limitednumber of insurance companies for a significant portion of its revenues.Revenues from the top three insurance companies that participate in InsWeb’smarketplace represented 27%, 39% and 38% of total revenues for the years ended December 31,2005, 2004 and 2003, respectively.

**Insurance Agent Network**

In 2004, InsWeb launchedits agent network program which provides online auto insurance consumers accessto local insurance agents. Prior to September 12, 2005, the agent networkprogram was conducted exclusively through an intermediary, NetQuote, Inc.During the years ended December 31, 2004 and 2005, NetQuote, Inc.represented 8% and 29% of auto transaction fees, respectively. InsWeb does nothave an exclusive or long-term contract with this intermediary. 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 providers. However, InsWeb has also enteredinto agreements with several large insurance companies to allow these companies’agents to participate in AgentInsider without bidding. Whether bidding orparticipating through a sponsoring insurance company, InsWeb is paid a fee foreach consumer lead sent to an agent. As of December 31,2005, 1,400 local personal lines insurance agents were participating inAgentInsider.

**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 (both captive and independent). InsWeb believesthat increased traffic will encourage insurance providers to develop and expandtheir relationship with InsWeb, and that enhancing the comparative shoppingopportunities available through increased insurance provider participation willdrive further increases in consumer traffic.

**Consumer Marketing**

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.

***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 provide that InsWeb pay the online company atransaction fee (based on click-throughs or consumer leads) and in limitedcases, a fixed fee. Online companies integrate links into their websitesconnecting to InsWeb’s marketplace. InsWeb provides functionality to furtherintegrate with online companies and, in some cases, provides co-brandingfunctionality whereby the online company’s logo is presented on the InsWebmarketplace to those consumers directed to InsWeb’s marketplace from a company’ssite. InsWeb’s agreements with online companies typically have a 12-monthterm, with either party having a right to terminate the agreement on 30 to90 day notice.

***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, 

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automobile, directory andgeneral interest sites. InsWeb and some of its third-party marketingproviders also conduct advertising campaigns promoting InsWeb through emailsand electronic newsletters. InsWeb’s advertisements are targeted primarily atconsumers who may be actively seeking insurance.

***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 31,2005, 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 software is designed as a high-volumetransaction-processing environment, with a focus on reliability,redundancy and around-the-clock availability. It is designed to enable thesystem to respond rapidly and to simultaneously underwrite and rate aconsumer’s profile against all participating insurance companies’ criteria. Thesoftware is also designed for scalability, enabling InsWeb to expand processingcapacity through the addition of more processors and servers as transactionvolumes increase.

InsWeb has also integratedsystems to facilitate incoming consumers through InsWeb’s Customer Care Centerand the processing of leads and sale of insurance policies through its agencyoperations. InsWeb’s agency technology systems use a combination of its ownproprietary technologies and commercially available, licensed technologies***.***

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**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 publicly available on its website. Consumer informationis transmitted to InsWeb’s site using Secure Socket Layer encryptiontechnology, a widely used technology for transmitting encoded data via a Webbrowser. InsWeb employs a number of other encryption methods for delivery ofconsumer information to insurance companies or local agents. InsWeb protectsits system management functions using security models integrated with theoperating system. Additionally, some sensitive software applicationsincorporate 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 separate server to operate the software for each primaryinsurance product, as well as at least one redundant server for each coreproduct. 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 through a third-party service provider tofacilitate the operation of its online marketplace in case of a failure at itsmain facility.

**Product Development**

InsWeb devotes significant resources to improving thestructure of its products and delivering additional tools that allow insuranceproviders to effectively reach consumers. InsWeb generally follows a monthlyrelease schedule for new versions of its online user interface, which mayincorporate technology advances, new product features and improvements inconsumer interactivity. InsWeb also devotes resources to refining its onlineconsumer tools and research materials, as well as developing new supportproducts. InsWeb is also researching new methods of designing more usefulinsurance-related material and presenting it to the consumer in a moremeaningful context.

InsWeb’s technologyexpenses were approximately $5.4 million in 2005, $5.4 million in2004, and $9.0 million in 2003.

**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 online insurance distribution market, like thebroader electronic commerce market, is rapidly evolving and is highlycompetitive. InsWeb competes with other companies that provide quotes and sellinsurance policies online, as well as with:

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

·       leadgeneration services that provide consumer leads to insurance agents;

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

·       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.

**Government Regulation**

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 and healthlicenses in 50 states and the District of Columbia. In addition, officers andemployees who are engaged in the sale of insurance are licensed as insuranceagents. InsWeb’s operations depend on the validity of and continued goodstanding 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.

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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. These conflicts could result in aloss of business from these insurance companies and could harm InsWeb’sbusiness.

**Intellectual Property**

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; in May 2005 InsWeb received its first patentfor its development of an event logging system. In connection with itsacquisition of assets from Intuit in January 2001, InsWeb obtained therights to patent applications filed by Intuit relating to Intuit’s onlineinsurance shopping and purchasing service. InsWeb’s pending trademarkregistrations and patent applications may not be approved or granted; or, ifgranted, 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 itsproprietary rights from unauthorized use or disclosure, employees, consultants,advisors or others 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. From time totime InsWeb has been subject to infringement claims in the ordinary course ofits business, including claims of alleged infringement of the trademark rightsof third parties by InsWeb and the companies with which it does business. Anyof these claims, with or without merit, could be time consuming to defend,result in costly litigation, divert management attention and resources orrequire InsWeb to enter into royalty or licensing agreements. Licenses may notbe available on reasonable terms, if at all, and the assertion or prosecutionof any infringement claims could significantly harm InsWeb’s business.

**Employees**

As of December 31, 2005, InsWeb had 122 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 

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may not continue to besuccessful in attracting and retaining a sufficient number of qualifiedpersonnel 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. Participants in thePlan are entitled to receive cash severance payments and health and medicalbenefits in the event their employment is terminated in connection with achange 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.

**ExecutiveOfficers of the Registrant**

As of March 1,2006, InsWeb’s executive officers were as follows:

| **Name**           | ** ** | ** **                                           | ** ** | **Position With InsWeb** | ** ** | **Age** |
|--------------------|------------|------------------------------------------------------|------------|--------------------------|------------|---------|
| Hussein A. Enan    |       | Chairman of the Board  and Chief Executive Officer   |       | 60                       |
| William D. Griffin |       | Chief Financial Officer                              |       | 48                       |
| L. Eric Loewe      |       | Senior Vice President, General Counsel and Secretary |       | 48                       |

*** ***

***Hussein A. Enan***co-founded InsWeb in February 1995 and has served as its Chairman of the Boardsince its inception. Mr. Enan served as InsWeb’s Chief Executive Officerfrom February 1995 to June 2002 and was reinstated to that positionin August 2004. Mr. Enan also served as InsWeb’s President from May 1999to June 2000. From March 1992 to November 1994, Mr. Enanwas a general partner at E.W. Blanch, a reinsurance intermediary thatmerged with his own wholly-owned company, Enan & Company, areinsurance intermediary, in March 1992. Mr. Enan founded Enan &Company in February 1979.

***William D. Griffin***joined InsWeb in May 2001 as Chief Financial Officer. From August 1999 to February 2001,Mr. Griffin was Chief Financial Officer of ZipSend, Inc., an Internetservices company, of which he was a co-founder. From October 1998 through August 1999,Mr. Griffin provided consulting services to various early stage Internetand technology companies. Prior to that, from May 1990 through September 1998,Mr. Griffin was Senior Vice President and Chief Financial Officer ofInference Corporation, a customer services software company.

***L. Eric Loewe***joined InsWeb in October 1998 as Corporate Counsel, Legal and Regulatory,responsible for all regulatory compliance issues, and has served as Senior VicePresident and General Counsel since September 2000 and as Secretary since July 2001.Mr. Loewe held various positions with the National Association ofIndependent Insurers from January 1980 to September 1998. As SeniorCounsel for the NAII, Mr. Loewe was responsible for legislation andregulations affecting the association’s 570 member companies. Mr. Loeweis a member of the Illinois and California bars.

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**Item 1A. Risk Factors.**

*Set forth below are the risks that we believe arematerial to our investors. This section contains forward-looking statements.You should refer to the explanation of the qualifications and limitations onforward-looking statements set forth at the beginning of Item 1 of thisReport.*

**Wehave a history of losses, we expect future losses, and we may not achieve ormaintain profitability**

Given planned investmentlevels, we believe that we will incur operating losses for at least the next year.We incurred operating losses of $6.3 million in 2005, $9.2 million in2004, and $7.0 million in 2003. As of December 31, 2005, ouraccumulated deficit was $188.6 million. Our operating results for futureperiods are subject to numerous uncertainties, and we may not achievesufficient revenues to become profitable. Even if we achieve profitability, wemay not be able to sustain or increase profitability on a quarterly or annualbasis in the future. If we are unable to achieve profitability or if our profitabilityis delayed we may need to seek additional financing to continue our businessoperations. Such financing could be on terms that are dilutive to our existingstockholders or could involve the issuance of securities that have rights andpreferences that are senior to those associated with our common stock.Moreover, if such financing were not available or were available only uponterms that were unacceptable to us, we could be required todelay, reduce, or cease certain of our operations, any of which couldmaterially harm our business and financial results.

**If weare unable to achieve cash flow breakeven or to generate working capital thatmay be required in the future, our ability to operate could suffer or cease**

Our operating activities to date have consumed substantialamounts of cash, cash equivalents and short-term investments ($5.3 million in2005, $8.7 million in 2004, and $4.2 million in 2003) and will continue torequire capital in the near future. At December 31, 2005, we had $10.3million in cash, cash equivalents and short-term investments. In order toremain competitive, we must continue to make investments essential to ourability to operate, including investments in direct marketing, technology andgeneral administration. In addition, wewill continue to face the costs of being a public company. In the event that we are unable togenerate revenues sufficient to offset our costs, or if our costs of marketingand operations are greater than we anticipate, we may be unable to grow ourbusiness at the rate desired or may be required to delay, reduce, or ceasecertain of our operations, any of which could materially harm our business andfinancial results.

**Ourbusiness is difficult to evaluate because our market is evolving rapidly andour business model is unpredictable**

An evaluation ofour future prospects is very difficult. An investor in our common stock mustconsider the uncertainties frequently encountered by early stage companies innew 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;

·       theuncertainty of the extent to which the consumer market will adopt the Internetas the preferred medium for comparison shopping for and purchase of insuranceproducts, which may limit our ability to generate revenue from consumers thatvisit our online marketplace or our insurance agency;

·       ourability to retain key employees; and

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·       ourreliance on key customers and ability to retain customers.

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.

**We may incurunexpected costs or receive less revenue than we planned from recentinitiatives that are part of our evolving business model and, as a result, ouroperations could be harmed**

In 2004, InsWeb launched its agent network programwhich provides online auto insurance consumers access to local insuranceagents. Prior to September 12, 2005, the agent network program wasconducted exclusively through an intermediary, NetQuote, Inc. During theyear ended December 31, 2005, NetQuote, Inc. represented 29% of autotransaction fees, compared to 8% during the year ended December 31, 2004.InsWeb does not have an exclusive or long-term contract with this intermediary.

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 September 12,2005 and complements the offering of our intermediary. However, as is the casewith many new initiatives, we have experienced a reduction in revenue perconsumer, compared to the revenue per consumer we would have received from ourintermediary for the same consumer lead, in the initial phases of the program.The length of time and extent of this reduction will depend on the rate ofregistration of local personal lines insurance agents and the degree ofparticipation of these agents throughout the country. We expect that the agentnetwork program, both through the intermediary and through our internallydeveloped network, will continue to represent a significant percentage of autotransaction fees. However, the agent network is subject to a number ofuncertainties, including the cost of developing and marketing the program, andthe continued participation of our third party intermediary. If we are unableto create a positive offering, if NetQuote should cease to serve as ourintermediary and we are unsuccessful in securing a replacement, or if thetransition of the agent network program from the intermediary to our internallydeveloped AgentInsider program is delayed or otherwise unsuccessful, theCompany’s business may be harmed.

In August 2004,InsWeb launched its term life agency business in an effort to achieve increasedrevenue per consumer within its term life marketplace, resulting in a shiftfrom a lead payment to a commission-based revenue model, which the Companybelieves will offer greater long-term financial benefit. This initiative issubject to a number of uncertainties, including the cost of developing theagency operations, and the continued participation of insurance carriers.Moreover, there are many insurance agencies selling term life insurance online,and it is increasingly difficult to find reliable sources of consumer traffic onreasonable terms. If we are unable to create a positive offering with thisinitiative or generate sufficient consumer traffic, we may lose business tocompetitors and/or our business may be harmed.

**Ourfuture revenues are unpredictable, our operating results are likely tofluctuate from quarter to quarter, and if we fail to meet the expectations ofinvestors, our stock price could decline significantly**

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. Moreover, our expense levels are basedlargely on our investment plans and estimates of future revenues. We may beunable to adjust our spending to compensate for an unexpected shortfall inrevenues. Accordingly, any significant shortfall in 

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revenues relative to ourplanned expenditures would harm our results of operations and could cause ourstock price to fall sharply, particularly following quarters in which ouroperating results fail to meet the expectations of investors.

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;

·       Consumertraffic on our online marketplace may decline as a result of the announcementor introduction of a competing online insurance marketplace or other newwebsites, products or services offered by our competitors;

·       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 and may be affected by slowInternet performance due to technical problems or traffic bottlenecks on thenetwork;

·       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;

·       Ourability to generate transaction fees may be adversely affected by changes inthe underwriting criteria used by our participating insurance companies todetermine which consumers will be offered quotes; and

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

**Weare exposed to increased costs and risks associated with complying with theincreasing regulation of corporate governance and disclosure 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 theeffectiveness of these systems by our independent registered public accountingfirm. We have commenced documenting our internal control systems and proceduresand will need to consider improvements that may be necessary in order for us tocomply with the requirements of Section 404 by the end of 2007. Thisprocess may require us to hire additional personnel and outside advisoryservices and will result in significant additional accounting and legalexpenses. We may encounter problems or delays in completing the review andevaluation, the 

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implementationof improvements and we may be unsuccessful in obtaining an unqualified reporton our assessment of, and/or the effectiveness of, our internal controls overfinancial reporting from our independent auditors. While we believe that wecurrently have adequate internal controls over financial reporting, in theevent that our chief executive officer or chief financial officer determinethat our controls over financial reporting are not effective as defined under Section 404,investor perceptions of our company may be adversely affected and could cause adecline in the market price of our stock.

**Seasonalityaffecting insurance shopping and Internet advertising may cause fluctuations inour 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 toexperience seasonality as our business matures. Because of this seasonality,investors may not 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.

**Becausea significant portion of our revenue is attributable to automobile insuranceshopping on our online marketplace, we are especially vulnerable to risksrelated to the online market for automobile insurance or the automobileinsurance industry generally**

Automobile insuranceaccounted for approximately 79% of our transaction revenues in 2005,approximately 77% in 2004 and approximately 79% in 2003. 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.

**If weare unable to promote our brands and expand our brand recognition, our abilityto draw consumers and agents to our services will 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 attractingadditional consumers to our website. Our current consumer marketing programconsists of the maintenance of certain network online relationships and otherselective cost effective marketing campaigns, designed to maintain consumerawareness of InsWeb and our online insurance marketplace. InsWeb’s local agentsales and 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, 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 marketingefforts do not generate a corresponding increase in revenues or we otherwisefail to successfully 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, 

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introduce new services orenter into new business ventures that are not favorably received, the value ofour 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.

**Competitionin the market for online distribution of insurance is intense, and if we areunable to compete effectively with current competitors or new competitors thatenter the market, the fees paid to us by participating insurance companies mayfall, the fees charged by online companies with which we have strategicrelationships may rise, and our market share 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 donot have exclusive relationships or long-term contracts with insurancecompanies, which may limit our ability to retain these insurance companies asparticipants in our marketplace and maintain the attractiveness of our servicesto 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 from these insurance companies without using our website.Our participating insurance companies also offer their products directly toconsumers through insurance agents, mass marketing campaigns or through othertraditional methods of insurance distribution. In most cases, our participatinginsurance companies also offer their products and services over the Internet,either directly to consumers or through one or more of our online competitors,or both. In addition, most of our agreements with our participating insurancecompanies are cancelable at the option of either party upon 90 days’notice or less. Furthermore, our agreements permit the insurance company tolimit its participation to certain states. We have experienced, and expect tocontinue to experience, reductions in the level of participation in ourmarketplace or complete termination by participating insurance companies. Thesereductions in participation, terminations, or an inability to attractadditional insurance companies to our marketplace could materially affect ourrevenues and harm our business.

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**Theoutcome and impact of the securities class action lawsuit involving InsWeb isuncertain**

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. In September 2005,the Court issued an order providing preliminary approval of the proposedsettlement and set a hearing for April 24, 2006 to consider final approvalof the settlement. If the Court does not approve the settlement, InsWeb intendsto defend the lawsuit vigorously. The litigation and settlement process isinherently uncertain and we cannot predict the outcome, though, if unfavorable,it could have a material adverse effect on InsWeb’s financial condition,results of operations and cash flows.

**Lawsand regulations that govern the insurance industry could expose us, or ourparticipating insurance companies, our officers, or agents with whom wecontract, to legal penalties if we fail to comply, and could require changes toour business**

We perform functions for licensed insurance companiesand are, therefore, required to comply with a complex set of rules andregulations that often vary from state to state. If we fail to comply withthese rules and regulations, we, an insurance company doing business withus, our officers, or agents with whom we contract, could be subject to varioussanctions, including censure, fines, a cease-and-desist order or otherpenalties. This risk, as well as changes in the regulatory climate or 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.

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**If weare unable to safeguard the security and privacy of consumers’ andparticipating insurance companies’ confidential data, consumers and insurancecompanies may not use our services and our business may be 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.

**Systemfailures could reduce or limit traffic on our website or interrupt ourcommunications with individual insurance companies and harm our ability togenerate 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 and availabilityof our website, quote-generating systems and network infrastructure arecritical to our reputation and our ability to attract a high volume of trafficto our website and to attract and retain participating insurance companies.Moreover, we believe that consumers who have a negative experience with anelectronic commerce website may be reluctant to return to that site. Thus, asignificant failure or outage affecting our systems could result in severelong-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’computer systems in order to perform the underwriting and risk analysis andrating functions required to generate quotes. Thus, the availability of quotesfrom a given insurance company may depend in large part upon the reliability ofthat insurance company’s own computer systems, over which we have no control.

**Ourfacilities and systems are vulnerable to natural disasters and other unexpectedlosses, and we may not have adequate insurance to cover such losses**

Our computer hardwareoperations are located in leased facilities in Gold River, California. A third-partyservice provider located in the Sacramento, California area maintains a backupof our critical systems. If both of these locations experienced a systemfailure, the performance of our website would be harmed. These systems are alsovulnerable to damage from fire, power loss, telecommunications failures,break-ins, natural disasters and similar events. If we seek to replicate oursystems at other locations, we will face a number of technical challenges,particularly with respect to database replications, which we may not be able toaddress successfully. Although we carry property and business interruptioninsurance, our coverage may not be adequate to compensate us for all lossesthat may occur. Our servers may also be vulnerable to computer viruses,physical or electronic break-ins and similar disruptions.

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**Werely on the services of our executive officers and other key personnel, whoseknowledge of our business and the insurance industry and technical expertisewould 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 ourbusiness. We have no long-term employment agreements with any of our keypersonnel, although Mr. Griffin and Mr. Loewe 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.

**Wemay be subject to claims for infringement of intellectual property, with orwithout merit, which could be costly to defend or 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.

**Ourstock price has fluctuated 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.

**Delawarelaw and our charter documents contain provisions that could discourage orprevent a potential takeover, even if such a transaction would be beneficial toour 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. Unresolved Staff Comments.**

Not applicable.

**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 

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were formerly occupied byInsWeb as its headquarters and were vacated by InsWeb in December 2000when 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 the subleaseof this facility, as amended, the sublessee is obligated to rent the entirefacility for the duration of the InsWeb lease (through September 2008) andto pay all rent and operating expenses otherwise payable by InsWeb directly tothe landlord. However, the sublessee is a start-up company with 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 obligations under the sublease, InsWeb would be responsible formaking the required lease payments to the landlord through the remaining termof the lease. In connection with this lease and other contractual lease obligationsfor formerly occupied facilities, InsWeb must make assumptions regarding thepotential future sublease income relative to these facilities. These estimatesand assumptions are affected by area-specific conditions such as new commercialdevelopment, market occupancy rates and future market prices. If theseestimates or their related assumptions change in the future, InsWeb may berequired to record a charge to increase its existing accrual.

InsWeb 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. Legal Proceedings.**

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. In September 2005,the Court issued an order providing preliminary approval of the proposedsettlement and set a hearing for April 24, 2006 to consider final approvalof the settlement. If the Court does not approve the settlement, InsWeb intendsto defend the lawsuit vigorously. The litigation and settlement process isinherently uncertain and we cannot predict the 

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outcome,though, if unfavorable, it could have a material adverse effect on InsWeb’sfinancial condition, results of operations and cash flows.

**Item 4. Submission of Matters to a Vote of SecurityHolders.**

InsWeb did not submit anymatters to a vote of our security holders during the fourth quarter of 2005.

**PART II**

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

InsWeb’scommon stock is quoted on the Nasdaq National Market under the symbol “INSW.”As of December 31, 2005, there were approximately 2,300 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** | ** ** |
| **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 |   |
| **2004**                 |       |                                     |       |   |   |
| December 31,  2004  |       | $                                        | 3.16       |   | $ | 2.11 |   |
| September 30,  2004 |       | $                                        | 4.35       |   | $ | 2.64 |   |
| June 30,  2004      |       | $                                        | 5.30       |   | $ | 4.40 |   |
| March 31, 2004      |       | $                                        | 5.77       |   | $ | 4.55 |   |

 

InsWeb has not paid any cash dividends on its capitalstock. InsWeb currently intends to retain future earnings, if any, for use inthe operation and expansion of our business and, therefore, does not anticipatepaying any cash dividends in the foreseeable future.

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**Item 6. Selected Financial 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,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| Revenues:                                              |       |                                       |       |   |   |   |   |   |   |   |   |
| Transaction fees                                       |       | $                                          | 24,650     |   | $ | 13,987 |   | $ | 23,192 |   | $ | 24,107 |   | $ | 22,976 |   |
| Development and  maintenance fees                      |       | 365                                        |       | 673 |   | 939 |   | 1,448 |   | 1,880 |   |
| Total revenues                                         |       | 25,015                                     |       | 14,660 |   | 24,131 |   | 25,555 |   | 24,856 |   |
| Operating expenses:                                    |       |                                       |       |   |   |   |   |   |   |   |   |
| Direct marketing                                       |       | 15,207                                     |       | 8,327 |   | 8,916 |   | 10,985 |   | 16,664 |   |
| Sales and marketing                                    |       | 6,770                                      |       | 5,541 |   | 7,095 |   | 7,344 |   | 12,157 |   |
| Technology                                             |       | 5,354                                      |       | 5,416 |   | 9,014 |   | 10,322 |   | 14,041 |   |
| General and  administrative                            |       | 4,023                                      |       | 4,544 |   | 5,883 |   | 6,850 |   | 7,345 |   |
| Amortization of stock-based  compensation              |       | —                                     |       | — |   | — |   | — |   | 256 |   |
| Impairment of long-lived  assets(1)                    |       | —                                     |       | — |   | 214 |   | 3,707 |   | 18,519 |   |
| Restructuring and other  charges(2)                    |       | —                                     |       | — |   | — |   | 1,800 |   | 1,843 |   |
| Total operating expenses                               |       | 31,354                                     |       | 23,828 |   | 31,122 |   | 41,008 |   | 70,825 |   |
| Loss from operations                                   |       | (6,339                                     | )          | (9,168 | ) | (6,991 | ) | (15,453 | ) | (45,969 | ) |
| Interest expense                                       |       | —                                     |       | — |   | (86 | ) | (465 | ) | (1,043 | ) |
| Interest and other  income, net(3)                     |       | 398                                        |       | 235 |   | 8,123 |   | 11,340 |   | 2,086 |   |
| Net income (loss)                                      |       | $                                          | (5,941     | ) | $ | (8,933 | ) | $ | 1,046 |   | $ | (4,578 | ) | $ | (44,926 | ) |
| Net income (loss) per share:                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Basic                                                  |       | $                                          | (1.40      | ) | $ | (1.90 | ) | $ | 0.21 |   | $ | (0.65 | ) | $ | (6.45 | ) |
| Diluted                                                |       | $                                          | (1.40      | ) | $ | (1.90 | ) | $ | 0.20 |   | $ | (0.65 | ) | $ | (6.45 | ) |
| Shares used in computing net income (loss) per  share: |       |                                       |       |   |   |   |   |   |   |   |   |
| Basic                                                  |       | 4,234                                      |       | 4,711 |   | 5,030 |   | 7,035 |   | 6,969 |   |
| Diluted                                                |       | 4,234                                      |       | 4,711 |   | 5,283 |   | 7,035 |   | 6,969 |   |

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(1)          Represents thewrite-down of long-lived assets in 2003, 2002 and 2001 related to theacquisition of certain assets of Intuit Insurance Services, Inc. and thewrite-off of assets in 2000 related to the Benelytics acquisition.

(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 (See Note 7 of Notes to Consolidated FinancialStatements). Also in 2003, InsWeb and eHealthInsurance.com agreed to settleongoing litigation in the U.S. District Court for Northern California, andeHealthInsurance agreed to pay InsWeb $800,000 for the services performed byInsWeb prior to the termination of the marketing agreement (See Note 10 ofNotes to Consolidated Financial Statements). In 2002, InsWeb recognized a gainof $10.6 million from the renegotiation and amendment of the obligationsunder a license and distribution agreement, which was originally entered intoin 2001 in connection with the purchase of certain assets of Intuit InsuranceServices, Inc.

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**CONSOLIDATED BALANCE SHEET DATA:**

*(in thousands)*

| ** **                                        | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **2005**                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| Cash and cash  equivalents                        |       | $                                     | 9,073      |   | $ | 9,334 |   | $ | 15,223 |   | $ | 12,382 |   | $ | 14,627 |   |
| Short-term  investments                           |       | 1,233                                 |       | 8,145 |   | 10,868 |   | 16,541 |   | 20,936 |   |
| Working capital                                   |       | 7,271                                 |       | 14,451 |   | 22,279 |   | 21,787 |   | 30,324 |   |
| Total assets                                      |       | 14,018                                |       | 20,475 |   | 29,882 |   | 37,692 |   | 54,342 |   |
| Long-term  liabilities, excluding current portion |       | —                                |       | — |   | — |   | — |   | 13,490 |   |
| Total stockholders’  equity                  |       | 8,141                                 |       | 15,715 |   | 24,279 |   | 27,088 |   | 31,772 |   |
|                                                   |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item 7. Management’s Discussion and Analysis ofFinancial 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 operating cycles, competition,risks associated with system development and operation risks, uncertaintyregarding the costs and revenues associated with new initiatives, management ofpotential growth and risks of new business areas, business combinations, andstrategic alliances. These risks and uncertainties, as well as other risks anduncertainties, which are described in greater detail in “Item 1A. RiskFactors” and other documents filed with the Securities and Exchange Commission,could cause InsWeb’s actual results to differ materially from historicalresults or those currently anticipated. All forward-looking statementsare based on information available to InsWeb on the date hereof, and InsWebassumes 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 is appropriate to use thehistorical cancellation rate to estimate a cancellation allowance for term lifeagency transactions and the Company, therefore, 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 12, 2005, the agent network programwas conducted exclusively through an intermediary, NetQuote, Inc. Duringthe year ended December 31, 2005, NetQuote represented 29% of autotransaction fees, compared to 8% during the year ended December 31, 2004.InsWeb does not have an exclusive or long-term contract with this intermediary.

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 September 12,2005 and complements the offering of our intermediary. However, as is the casewith many new initiatives, we have experienced a reduction in revenue perconsumer, compared to the revenue per consumer we would have received from ourintermediary for the same consumer lead, in the initial phases of the program.The length of time and extent of this reduction will depend on the rate ofregistration of local personal lines insurance agents and the degree ofparticipation of these agents throughout the country. We expect that the agentnetwork program, both through the intermediary and through our internallydeveloped network, will continue to represent a significant percentage of autotransaction 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 79% of our transactionrevenues in 2005, approximately 77% in 2004 and approximately 79% in 2003. 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 approximately27% of InsWeb’s revenues for the year ended December 31, 2005. Revenuesfrom Progressive accounted for approximately 10% of InsWeb’s revenues for theyear ended December 31, 2004. Revenues from Progressive, GE FinancialAssurance (“GEFA”) and American Family accounted for approximately 14%, 14% and10%, respectively, of InsWeb’s revenues for the year ended December 31,2003.

InsWeb has incurredoperating losses of $6.3 million in 2005, $9.2 million in 2004, and $7.0million in 2003, and as of December 31, 2005, our accumulated deficit was$188.6 million. In addition, InsWeb’s operating activities to datehave consumed substantial amounts of cash, cash equivalents and short-terminvestments ($5.3 million in 2005, $8.7 million in 2004, and $4.2 million in2003) and will continue to require capital in the near future. At December 31,2005, InsWeb had $10.3 million in cash, cash equivalents and short-terminvestments. The losses and the related accumulated deficit are a resultof the significant costs incurred in the development of InsWeb’s technologyplatform, the establishment of relationships with insurance companies, theirintegration with the InsWeb site, and InsWeb’s marketing and sales activities. In orderto remain competitive, the Company must continue to make investments essentialto its ability to operate, and InsWeb intends to continue to invest inproduct development and maintenance, and sales and marketing. In addition, theCompany will continue to incur the costs associated 

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withcontinuing to function as a publicly listed company, including the costs ofcompliance with the provisions of the Sarbanes-Oxley Act of 2002, among otherthings, even though the Company will not be required to comply with Section 404 of the Sarbanes-Oxley Act until 2007.As a result, InsWeb believes that it will continue to incur operating lossesfor at least 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 at the rate desired or may be required to delay, reduce, orcease certain of its operations, any of which could materially harm its businessand financial results. In addition, if InsWeb is unable to ultimatelyachieve profitability, the Company may need to seek additional financing tocontinue its 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 of Operations**

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

| ** **                       | ** ** | ** **                                 | ** ** | **Percentage**       | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|----------------------|------------|
| ** **                       | ** ** | ** **                                 | ** ** | **Change from** | ** ** |
| ** **                       | ** ** | **Year ended December 31,** | ** ** | **Prior Year**  | ** ** |
| ** **                       | ** ** | **2005**                                   | ** ** | **2004**             | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:                        |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Transaction fees:                |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Auto insurance                   |       | $                                          | 19,556     |                 | $          | 10,705 |   | $ | 18,250 |   |   | 83 | % |   | (41 | )% |
| Term life insurance              |       | 4,745                                      |       | 3,021                |       | 4,470 |   |   | 57 | % |   | (32 | )% |
| Other insurance offerings        |       | 349                                        |       | 261                  |       | 472 |   |   | 34 | % |   | (45 | )% |
|                             |       | 24,650                                     |       | 13,987               |       | 23,192 |   |   | 76 | % |   | (40 | )% |
| Development and maintenance fees |       | 365                                        |       | 673                  |       | 939 |   |   | (46 | )% |   | (28 | )% |
| Total revenues                   |       | 25,015                                     |       | 14,660               |       | 24,131 |   |   | 71 | % |   | (39 | )% |
| Operating expenses:              |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Direct marketing                 |       | 15,207                                     |       | 8,327                |       | 8,916 |   |   | 83 | % |   | (7 | )% |
| Sales and marketing              |       | 6,770                                      |       | 5,541                |       | 7,095 |   |   | 22 | % |   | (22 | )% |
| Technology                       |       | 5,354                                      |       | 5,416                |       | 9,014 |   |   | (1 | )% |   | (40 | )% |
| General and administrative       |       | 4,023                                      |       | 4,544                |       | 5,883 |   |   | (11 | )% |   | (23 | )% |
| Impairment of long-lived assets  |       | —                                     |       | —               |       | 214 |   |   | — |   |   | n/m |   |
| Total operating  expenses        |       | 31,354                                     |       | 23,828               |       | 31,122 |   |   | 32 | % |   | (23 | )% |
| Loss from operations             |       | $                                          | (6,339     | )                    | $          | (9,168 | ) | $ | (6,991 | ) |   | (31 | )% |   | 31 | % |

 

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

| ** **                        | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------|------------|--------------------------------------------|------------|
| ** **                        | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenues:                         |       |                                       |       |   |   |   |   |
| Transaction fees:                 |       |                                       |       |   |   |   |   |
| Auto insurance                    |       | 78.2                                       | %          | 73.0 | % | 75.6 | % |
| Term life insurance               |       | 19.0                                       | %          | 20.6 | % | 18.5 | % |
| Other insurance                   |       | 1.3                                        | %          | 1.8 | % | 2.0 | % |
| Development and  maintenance fees |       | 1.5                                        | %          | 4.6 | % | 3.9 | % |
| Total revenues                    |       | 100.0                                      | %          | 100.0 | % | 100.0 | % |
| Operating expenses:               |       |                                       |       |   |   |   |   |
| Direct marketing                  |       | 60.8                                       | %          | 56.8 | % | 36.9 | % |
| Sales and marketing               |       | 27.1                                       | %          | 37.8 | % | 29.4 | % |
| Technology                        |       | 21.4                                       | %          | 36.9 | % | 37.4 | % |
| General and  administrative       |       | 16.0                                       | %          | 31.0 | % | 24.4 | % |
| Impairment of long-lived  assets  |       | —                                     |       | — |   | 0.9 | % |
| Total operating expenses          |       | 125.3                                      | %          | 162.5 | % | 129.0 | % |
| Loss from operations              |       | (25.3                                      | )%         | (62.5 | )% | (29.0 | )% |

 

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

| ** **                                                                                         | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(In thousands, except percentages and per consumer amounts**) | ** ** | ** **                                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Direct marketing costs                                                                             |       | $                                          | 15,207     |   | $ | 8,327 |   | $ | 8,916 |   |
| Direct marketing costs  as a percent of transaction fees                                           |       | 62                                         | %          | 60 | % | 38 | % |
| Number of consumers                                                                                |       | 5,267                                      |       | 2,822 |   | 6,658 |   |
| Direct marketing cost  per consumer                                                                |       | $                                          | 2.89       |   | $ | 2.95 |   | $ | 1.34 |   |
| Transaction fees per consumer                                                                      |       | $                                          | 4.68       |   | $ | 4.96 |   | $ | 3.48 |   |
|                                                                                                    |            |                                            |            |  |  |  |  |  |  |  |  |  |

 

Automarketplace metrics and costs were as follows:

| ** **                                                                                         | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(In thousands, except percentages and per consumer amounts**) | ** ** | ** **                                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Auto insurance transaction revenues                                                                |       | $                                          | 19,556     |   | $ | 10,705 |   | $ | 18,250 |   |
| Number of consumers                                                                                |       | 4,846                                      |       | 2,370 |   | 5,779 |   |
| Auto insurance transaction fees per consumer                                                       |       | $                                          | 4.04       |   | $ | 4.52 |   | $ | 3.16 |   |
|                                                                                                    |            |                                            |            |  |  |  |  |  |  |  |  |  |

 

Termlife marketplace metrics and costs were as follows:

| ** **                                                                                         | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(In thousands, except percentages and per consumer amounts**) | ** ** | ** **                                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Term life insurance transaction revenues                                                           |       | $                                          | 4,745      |   | $ | 3,021 |   | $ | 4,470 |   |
| Number of consumers                                                                                |       | 306                                        |       | 325 |   | 528 |   |
| Term life insurance transaction fees per consumer                                                  |       | $                                          | 15.51      |   | $ | 9.30 |   | $ | 8.47 |   |
|                                                                                                    |            |                                            |            |  |  |  |  |  |  |  |  |  |

 

Definitions:

| “Direct marketing costs”                      |   | Represents  expenses incurred by the company to drive consumer traffic to InsWeb’s online  insurance marketplace; |
|---------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|
| “Number of consumers”                         |   | Represents a consumer who has started an InsWeb  application;                                                          |
| “Transaction Fee per consumer” |   | Represents transaction revenue earned per consumer  who has started an application.                                    |

 

 

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**Years ended December 31, 2005 and 2004**

**Revenues**

***Transaction Fees.******  ***Automobileinsurance transaction fees (consisting of lead fees, commissions and SponsoredWeb Link fees) increased to $19.6 million in 2005 from $10.7 million in2004. The 83% increase in transaction fees was primarily attributable to a 104%increase in the number of consumers shopping for automobile insurance on theInsWeb platform 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,as discussed above. Management expects revenue per auto consumer to increasethroughout 2006 as AgentInsider expands with the addition of local insuranceagents.

Term life insurance transactionfees (consisting of agency commissions and lead fees) increased 57% to $4.7 million in 2005 from$3.0 million in 2004. The increase in revenues reflects thecompleted transition of our term life agency to a commission-based revenuemodel, as discussed above. Revenue per termlife consumer increased to $15.51 in 2005, compared to $9.30 in 2004. Managementexpects revenue per term lifeconsumer to continue at approximately year 2005 levels; however, quarterlyfluctuations will occur as a result of variations in timing in closing termlife policies. Under the commission-based revenue model it generally takes 90to 120 days to complete the sale of a term life policy and for the relatedrevenue to be recognized.

***Development and Maintenance Fees.******  ***Developmentand maintenance fees accounted for $0.4 million, or 1.5%, of totalrevenues in 2005, compared to $0.7 million, or 4.6%, in 2004. Developmentand maintenance fees are expected to decline from 2005 levels.

**Operating Expenses**

***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 expenses increased83% to $15.2 million in 2005, compared to $8.3 million in 2004. Thisincrease in spending drove an 87% increase in consumer traffic, compared to2004 levels. Direct marketing expense as a percent of transaction revenues was62% in 2005, compared to 60% in 2004. The Company expects that for 2006, directmarketing costs per consumer acquired will increase from 2005 levels; and whilethe amount of consumer traffic driven to the InsWeb marketplace will fluctuateduring the year due to seasonality and the competitive environment for onlineconsumers, we expect that overall consumer traffic for 2006 will be at levelsgreater than 2005.

***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 and support groups. Sales andmarketing expenses increased to $6.8 million in 2005 from$5.5 million in 2004, a 22% increase. This increase was a result of theexpansion of the term life agency and the launch of the AgentInsider program(sales, customer support and agent marketing costs). Sales and marketingexpenditures are expected to 

28

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increase throughout 2006,as the term life agency operations continue to expand and as the AgentInsiderprogram continues to grow with additional sales and support staff.

***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 expenseswere $5.4 million in 2005 and 2004. Technology expenses in 2006 areexpected to remain at levels comparable to 2005.

***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 $4.0 million in 2005 from$4.5 million in 2004. The decrease was primarily due to a reduction inheadcount. General and administrative expenses in 2006 are expected to remainat levels comparable to 2005.

**Interest and OtherIncome, Net**

Interest and other incomefor 2005 was $0.4 million compared to $0.2 million in 2004. Interest incomerepresents income earned on InsWeb’s short-term investments.

**Years ended December 31, 2004 and 2003**

**Revenues**

***Transaction Fees.******  ***Transactionfees relating to automobile insurance decreased to $10.7 million in 2004from $18.3 million in 2003. The 41% decrease in transaction fees is primarilyattributable to a 59% decrease in the number of consumers shopping forautomobile insurance on the InsWeb platform in 2004 compared to 2003. Revenueper auto consumer increased to $4.52 in 2004 from $3.16 in 2003 primarily as aresult of the Sponsored Web Link program, whereby consumers are provided theopportunity to link directly to a third party insurance provider’s website, andthe establishment of an agent network program which provides online autoinsurance consumers access to local insurance agents. The agent network programwas conducted exclusively through an intermediary, NetQuote, which represented9% of auto transaction fees during the year ended December 31, 2004.

Transaction fees from the sale of term life insurancethrough the InsWeb online marketplace decreased to $3.0 million in 2004from $4.5 million in 2003, a decrease of 32%. The decrease in revenues wasa result of a 38% decrease in the number of consumers shopping for term lifeinsurance on the InsWeb platform in 2004 compared to 2003 and the transition ofa number of insurance companies from lead-based revenue model to acommission-based model. Revenue per term life consumer increased to $9.30 in2004, compared to $8.48 in 2003. In August 2004, InsWeb launched its termlife agency business in an effort to increase revenue per consumer within theterm life marketplace. The conversion from a lead-based revenue model to acommission-based revenue model results in a delay in revenue recognition, as ittypically takes 90 to 120 days to complete the sales process for a term lifepolicy. This transition to a commission-based revenue was completed in early2005.

***Development and Maintenance Fees.******  ***Developmentand maintenance fees accounted for $0.7 million, or 4.6%, of totalrevenues in 2004, compared to $0.9 million, or 3.9%, in 2003.

**Operating Expenses**

***Technology.******  ***Technologyexpenses decreased to $5.4 million in 2004 from $9.0 million in 2003.The decrease was primarily attributable to a reduction in headcount.

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***Direct Marketing.******  ***Directmarketing expenses decreased 7% to $8.3 million in 2004, compared to $8.9 millionin 2003. Direct marketing expense as a percent of transaction revenues was 60%in 2004, as compared to 38% in 2003. This increase was a result of the highlycompetitive and expensive online consumer marketing environment that the Companymust compete in.

***Sales and Marketing.******  ***Sales andmarketing expenses decreased to $5.5 million in 2004 from$7.1 million in 2003, a 22% decrease. This decrease was a result ofheadcount reductions from the scaling-back of the InsWeb auto agency sales andsupport staff.

***General and Administrative.******  ***General andadministrative expenses decreased to $4.5 million in 2004 from$5.9 million in 2003. The decrease was primarily due to a reduction inheadcount and a decrease in legal expenses due to the settlement of litigationwith eHealthInsurance in March 2003.

**Interest Expense**

Interest expense was $0 in2004 and $86,000 in 2003. The decrease in interest expense was attributable toa reduction in the liability due to Intuit Insurance Services, Inc. as aresult of payments made by InsWeb.

**Interest and OtherIncome, Net**

Interest and other incomefor 2004 was $0.2 million compared to $8.1 million in 2003. Interest and otherincome for 2003 included a gain of $6.8 million recognized on the sale ofInsWeb’s interest in Finance All K.K. Additionally in 2003, InsWeb andeHealthInsurance.com agreed to settle ongoing litigation in the U.S. DistrictCourt for Northern California, and eHealthInsurance agreed to pay InsWeb$0.8 million for services performed by InsWeb prior to the termination ofthe marketing agreement.

**Critical Accounting Policies**

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

***Accrual for LeaseObligations.******  ***InsWeb is contractually obligated tomake future lease payments on certain formerly occupied facilities through September 2008.As of December 31, 2005 total future obligations for these facilitiesamounted to $6.8 million; these obligations are offset by total contractualfuture sublease income of approximately $5.7 million. Substantially allfuture sublease income is due from a sublessee who is a start-up company with alimited operating 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 amended 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 lease obligations for formerly occupied facilities, InsWeb must makeassumptions regarding the potential future sublease income relative to thesefacilities. These estimates and assumptions are affected by area-specificconditions such as new commercial development, market occupancy rates andfuture market prices. Based on these 

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assumptions, the Companymaintains an accrual for formerly occupied facilities. The remaining accrualfor lease obligation of formerly occupied facilities was $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.******  ***As discussedin Item 3—“Legal Proceedings,” a class action lawsuit has been filed thatalleges InsWeb violated certain federal securities laws at the time of itsinitial public offering. Although some claims against InsWeb in this classaction have been dismissed and a settlement of these proceedings has beenproposed and conditionally accepted, InsWeb cannot accurately predict theultimate outcome of this matter at this time and therefore, cannot estimate therange of probable loss, if any, due to the inherent uncertainties oflitigation. InsWeb believes it has meritorious defenses; however InsWeb cannotassure that it will prevail in this action. An unfavorable outcome could have amaterial adverse effect on InsWeb’s financial condition, results of operationsand cash flows.

***Income Taxes.******  ***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 $74 million at December 31, 2005, isdependent upon our ability to generate sufficient future taxable income. Wehave established a full valuation allowance against our net deferred tax assetsfor continuing operations to reflect the uncertainty of realizing the deferredtax benefits, given historical losses. A valuation allowance is required whenit is more likely than not that all or a portion of a deferred tax asset willnot be realized. A review of all available positive and negative evidence needsto be considered, including our past and future performance, the marketenvironment in which we operate, the utilization of tax attributes in the past,and the length of carryforward periods and evaluation of potential tax planningstrategies. We expect to continue to maintain a full valuation allowance untilan appropriate level of profitability is sustained or we are able to developtax strategies that would enable us to conclude that it is more likely than notthat a portion of our deferred tax assets would be realizable.

**Liquidity and Capital Resources**

Summarizedcash flow information is as follows (in thousands):

| ** **                                       | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Cash used in  operating activities               |       | $                                          | (5,342     | ) | $ | (8,722 | ) | $ | (4,196 | ) |
| Cash provided by  investing activities           |       | 6,791                                      |       | 2,548 |   | 14,467 |   |
| Cash (used in) provided  by financing activities |       | (1,710                                     | )          | 285 |   | (7,430 | ) |
|                                                  |            |                                            |            |  |  |  |  |  |  |  |

 

At December 31, 2005, InsWeb’s principal sourceof liquidity was $10.3 million in cash, cash equivalents and short-terminvestments. Since inception, InsWeb has financed its operations primarilythrough the sale of preferred and common stock.

Net cash used in operating activities was$5.3 million in 2005 compared to $8.7 million in 2004 and$4.2 million in 2003. In 2005, net cash used in operating activitiesprimarily consisted of InsWeb’s net loss, partially offset by non-cashdepreciation and amortization of fixed assets of $0.4 million. Cash usedin operations in 2005 was reduced by an increase in accounts receivable andaccrued expenses, offset by an increase in accounts payable. In 2004, net cashused in operating activities primarily consisted of InsWeb’s net loss,partially offset by depreciation and amortization of fixed assets of$0.7 million. Decreases in accrued expenses, partially offset by anincrease in accounts payable affected cash used in operations in 

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2004. In 2003, net cashused in operating activities, primarily consisted of InsWeb’s net income,offset by the gain on the sale of its investment in Finance All K.K. of$6.8 million; depreciation and amortization of fixed assets of$1.0 million; and amortization of intangible assets and prepaid marketingcosts of $0.4 million. Decreases in accounts receivable and prepaidexpenses, partially offset by the decreases in accrued expenses and accountspayable affected cash used in operations in 2003.

Net cash provided by investing activities was$6.8 million in 2005 compared to $2.5 million in 2004 and$14.5 million in 2003. Net cash provided by investing activities in 2005primarily consisted of net maturities of short-term investments of$6.9 million. Net cash provided by investing activities in 2004 primarilyconsisted of net maturities of short-term investments of $2.7 million. Netcash provided by investing activities in 2003 primarily consisted of proceedsfrom the sale of InsWeb’s investment in Finance All K.K. of $8.9 millionand net maturities of short-term investments of $5.7 million.

Net cash used in financing activities was$1.7 million in 2005 compared to net cash provided by financing activitiesof $0.3 million in 2003 and net cash used of $7.4 million in 2003.Net cash used in financing activities in 2005 resulted primarily from therepurchase of common stock for $1.7 million. Net cash provided byfinancing activities in 2004 primarily represented proceeds from issuance ofcommon stock through employee stock plans of $0.4 million, partially offset byrepayment of debt of $0.1 million. Net cash used in financing activities in2003 related to repayments of debt of $3.3 million and the repurchase ofcommon stock for $4.2 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 31,2005 is summarized as follows (in thousands): 

| **Years ending December 31,** | ** ** | ** ** | ** ** | **Gross lease  commitments** | ** ** | **Sublease  income** | ** ** | **Net lease  commitment** | ** ** |
|----------------------------------------------|------------|------------|------------|-----------------------------------|------------|----------------------|------------|--------------------------------|------------|
| 2006                                         |       |       | $          | 3,391                             |       |                 | $          | (2,030                         | )          |   | $ | 1,361 |   |   |
| 2007                                         |       |       | 3,483      |                              |       | (2,100               | )          |                           | 1,383      |   |   |
| 2008                                         |       |       | 2,936      |                              |       | (1,615               | )          |                           | 1,321      |   |   |
| 2009                                         |       |       | 1,078      |                              |       | —               |       |                           | 1,078      |   |   |
| 2010                                         |       |       | 1,078      |                              |       | —               |       |                           | 1,078      |   |   |
| Thereafter                                   |       |       | 359        |                              |       | —               |       |                           | 359        |   |   |
|                                         |       |       | $          | 12,325                            |       |                 | $          | (5,745                         | )          |   | $ | 6,580 |   |   |

 

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 $5.4 million, through the remainder ofthe lease. However, the sublessee is a start-up 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 

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to these facilities. Theseestimates and assumptions are affected by area-specific conditions such as newcommercial development, market occupancy rates and future market prices. Ifthese estimates or their related assumptions change in the future, InsWeb maybe required to record a charge to increase its existing accrual.

InsWeb currentlyanticipates that its cash, cash equivalents and short-term investments will besufficient to meet its anticipated cash needs for working capital and capitalexpenditures for at least the next 12 months. Although InsWeb does notanticipate the need for additional financing, InsWeb nevertheless may requireadditional funds to meet operating needs, or to expand its business internallyor through acquisition. InsWeb cannot be certain that additional financing willbe available when required, on favorable terms or at all. If InsWeb is not successfulin raising additional capital as required, its business could be materiallyharmed. If additional funds were raised through the issuance of equitysecurities, the percentage ownership of InsWeb’s then-current stockholderswould be reduced.

**Recentlyissued accounting standards**

***Statement of Financial Accounting Standard No. 123(R)***

In December 2004, the Financial AccountingStandards Board (“FASB”) issued Statement 123(R), “*Share-Based Payment*” (“FAS 123(R)”) which requires all companies to measurecompensation cost for all share-based payments (including employee stockoptions) at fair value. In April 2005, the SEC issued a release whichamends the compliance dates for FAS 123(R). InsWeb will adopt the newaccounting provisions beginning in the first quarter of 2006 using the modifiedprospective transition method.

On October 19, 2005,the Compensation Committee of the Board of Directors of InsWeb Corporationapproved the acceleration of vesting of all stock options outstanding as of October 19,2005 held by employees and the Company’s Section 16 officers (the “Acceleration”).Options to purchase approximately 496,000 shares of common stock, or 33% of thetotal outstanding options, with varying remaining vesting schedules, weresubject to the Acceleration and became immediately exercisable. All other termsand conditions applicable to such options, including the exercise prices,remain unchanged. As a result of the Acceleration, the Company expects theadoption of the FAS 123(R) willnot have a significant effect on earnings or financial position. Stock optionexpense after the adoption of FAS 123(R)will be dependent on the levels of share-based payments granted in thefuture.

**Item 7A. Quantitative and Qualitative DisclosuresAbout 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 andensure the safety of invested funds by limiting market and credit risk. Fundsin excess 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.

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Thetable below represents carrying amounts and related weighted-averageinterest rates of InsWeb’s investment portfolio at December 31, 2005 (inthousands, except interest rates):

| Cash equivalents             |   | $    | 7,909 |   |
|------------------------------|--------|------|-------|--------|
| Average interest  rate       |   | 4.32 | %     |
| Short-term  investments      |   | $    | 1,233 |   |
| Average interest  rate       |   | 4.09 | %     |
| Total investment  securities |   | $    | 9,142 |   |
| Average interest rate        |   | 4.29 | %     |

 

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

The Report of Independent Registered Public AccountingFirm, Consolidated Financial Statements and Notes to Consolidated FinancialStatements follow below on pages F-1 to F-20.

 

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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, 2005 and 2004                                                    |   | F-3 |
| Consolidated Statements of Operations for the years  ended December 31, 2005, 2004 and 2003                      |   | F-4 |
| Consolidated Statements of Stockholders’ Equity for  the years ended December 31, 2005, 2004 and 2003  |   | F-5 |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2005, 2004 and 2003                      |   | F-6 |
| Notes to Consolidated Financial Statements                                                                            |   | F-7 |

 

F-1

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**Reportof Independent Registered Public Accounting Firm**

**The Board of Directors and Stockholders of InsWebCorporation**

We have audited the accompanying consolidated balancesheets of InsWeb Corporation as of December 31, 2005 and 2004, and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the three years in the period ended December 31, 2005.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 ouropinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of InsWeb Corporation atDecember 31, 2005 and 2004, and the consolidated results of its operationsand its cash flows for each of the three years in the period ended December 31,2005, in conformity with U.S. generally accepted accounting principles. Also,in our opinion, the related financial statement schedule, when considered inrelation to the basic financial statements taken as a whole, presents fairly inall material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

 

Sacramento, CaliforniaJanuary 24, 2006

F-2

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**INSWEB CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

***(Amounts inthousands, except per share amounts)***

| ** **                                                                                                                                                                   | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **2005**              | ** ** | **2004** | ** ** |
| **Assets**                                                                                                                                                                   |       |                  |       |   |   |
| Current assets:                                                                                                                                                              |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                                                    |       | $                     | 9,073      |   | $ | 9,334 |   |
| Short-term investments                                                                                                                                                       |       | 1,233                 |       | 8,145 |   |
| Accounts receivable, net of allowances of $36 at  2005 and $27 at 2004                                                                                                       |       | 2,297                 |       | 1,025 |   |
| Prepaid expenses and other current assets                                                                                                                                    |       | 545                   |       | 707 |   |
| Total current assets                                                                                                                                                         |       | 13,148                |       | 19,211 |   |
| Property and  equipment                                                                                                                                                      |       | 524                   |       | 814 |   |
| Other assets                                                                                                                                                                 |       | 346                   |       | 450 |   |
| Total assets                                                                                                                                                                 |       | $                     | 14,018     |   | $ | 20,475 |   |
| **Liabilities  and stockholders’ equity**                                                                                                                               |       |                  |       |   |   |
| Current liabilities:                                                                                                                                                         |       |                  |       |   |   |
| Accounts payable                                                                                                                                                             |       | $                     | 2,655      |   | $ | 1,248 |   |
| Accrued expenses                                                                                                                                                             |       | 3,094                 |       | 3,456 |   |
| Deferred revenue                                                                                                                                                             |       | 128                   |       | 56 |   |
| Total current liabilities                                                                                                                                                    |       | 5,877                 |       | 4,760 |   |
| Commitments and contingencies                                                                                                                                                |       |                  |       |   |   |
| Stockholders’ equity:                                                                                                                                                   |       |                  |       |   |   |
| Convertible preferred stock, $0.001 par value.  Authorized: 5,000 shares; no shares issued or outstanding at 2005 and 2004                                                   |       | —                |       | — |   |
| Common stock, $0.001 par value. Authorized: 25,000  shares; 7,301 shares issued and 4,077 shares outstanding at 2005, and 7,257  shares issued and 4,789 outstanding at 2004 |       | 7                     |       | 7 |   |
| Paid-in capital                                                                                                                                                              |       | 203,059               |       | 202,961 |   |
| Treasury stock, 3,224 shares at 2005 and 2,468  shares at 2004                                                                                                               |       | (6,334                | )          | (4,596 | ) |
| Accumulated other comprehensive loss                                                                                                                                         |       | (1                    | )          | (8 | ) |
| Accumulated deficit                                                                                                                                                          |       | (188,590              | )          | (182,649 | ) |
| Total stockholders’ equity                                                                                                                                              |       | 8,141                 |       | 15,715 |   |
| Total liabilities  and stockholders’ equity                                                                                                                             |       | $                     | 14,018     |   | $ | 20,475 |   |

 

See accompanying notes.

F-3

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**INSWEB CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

***(Amounts inthousands, except per share amounts)***

| ** **                                             | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenues:                                              |       |                                        |       |   |   |   |   |
| Transaction fees                                       |       | $                                           | 24,650     |   | $ | 13,987 |   | $ | 23,192 |   |
| Development and maintenance fees                       |       | 365                                         |       | 673 |   | 939 |   |
| Total revenues                                         |       | 25,015                                      |       | 14,660 |   | 24,131 |   |
| Operating expenses:                                    |       |                                        |       |   |   |   |   |
| Technology                                             |       | 5,354                                       |       | 5,416 |   | 9,014 |   |
| Sales and marketing                                    |       | 21,977                                      |       | 13,868 |   | 16,011 |   |
| General and administrative                             |       | 4,023                                       |       | 4,544 |   | 5,883 |   |
| Impairment of long-lived assets                        |       | —                                      |       | — |   | 214 |   |
| Total operating expenses                               |       | 31,354                                      |       | 23,828 |   | 31,122 |   |
| Loss from  operations                                  |       | (6,339                                      | )          | (9,168 | ) | (6,991 | ) |
| Interest expense                                       |       | —                                      |       | — |   | (86 | ) |
| Interest and  other income, net                        |       | 398                                         |       | 235 |   | 8,123 |   |
| Net income (loss)                                      |       | $                                           | (5,941     | ) | $ | (8,933 | ) | $ | 1,046 |   |
| Net income (loss)  per share:                          |       |                                        |       |   |   |   |   |
| Basic                                                  |       | $                                           | (1.40      | ) | $ | (1.90 | ) | $ | 0.21 |   |
| Diluted                                                |       | $                                           | (1.40      | ) | $ | (1.90 | ) | $ | 0.20 |   |
| Shares used in  computing net income (loss) per share: |       |                                        |       |   |   |   |   |
| Basic                                                  |       | 4,234                                       |       | 4,711 |   | 5,030 |   |
| Diluted                                                |       | 4,234                                       |       | 4,711 |   | 5,283 |   |

 

See accompanying notes.

F-4

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**INSWEB CORPORATION**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYYears ended December 31, 2005, 2004 and 2003*(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, 2002                                              |       |                  | 7,087      |        |       |                    | $          | 7                 |       |            | $          | 202,426         |       | (149        | )          | $          | (375       | ) |   | $ | (208 | ) |   |   | $ | (174,762 | ) |   | $ | 27,088 |   |
| Issuance of  shares through employee stock purchase plan and stock option plan |       |                  | 26         |        |       |                    | —     |              |       | 133             |       | —          |       | —      |       |       | —     |   |   |   | — |   |   | 133 |   |
| Issuance of  common stock warrants in connection with a service agreement      |       |                  | —     |        |       |                    | —     |              |       | 25              |       | —          |       | —      |       |       | —     |   |   |   | — |   |   | 25 |   |
| Shares  repurchased                                                            |       |                  | —     |        |       |                    | —     |              |       | —          |       | (2,319          | )          | (4,221      | )          |       | —     |   |   |   | — |   |   | (4,221 | ) |
| Comprehensive income:                                                          |       |                  |       |        |       |                    |       |              |       |            |       |            |       |        |       |       |       |   |   |   |   |   |   |   |   |
| Reclassification adjustment                                                    |       |                  | —     |        |       |                    | —     |              |       | —          |       | —          |       | —      |       |       | 211        |   |   |   | — |   |   | 211 |   |
| Change in unrealized gain on investments                                       |       |                  | —     |        |       |                    | —     |              |       | —          |       | —          |       | —      |       |       | (3         | ) |   |   | — |   |   | (3 | ) |
| Net income                                                                     |       |                  | —     |        |       |                    | —     |              |       | —          |       | —          |       | —      |       |       | —     |   |   |   | 1,046 |   |   | 1,046 |   |
| Comprehensive  income                                                          |       |                  | —     |        |       |                    | —     |              |       | —          |       | —          |       | —      |       |       | —     |   |   |   | — |   |   | 1,254 |   |
| 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 |   |
|                                                                                |            |                       |            |             |            |                         |            |                   |            |                 |            |                 |            |             |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes.

F-5

 

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**INSWEB CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

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

***(Amounts inthousands)***

| ** **                                                                            | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                            | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| Cash flows from  operating activities:                                                |       |                                        |       |   |   |   |   |
| Net income (loss)                                                                     |       | $                                           | (5,941     | ) | $ | (8,933 | ) | $ | 1,046 |   |
| Adjustments to  reconcile net income (loss) to net cash used in operating activities: |       |                                        |       |   |   |   |   |
| Gain on sale of investment in Finance All K.K.                                        |       | —                                      |       | — |   | (6,838 | ) |
| Impairment of long-lived assets                                                       |       | —                                      |       | — |   | 214 |   |
| Other income                                                                          |       | —                                      |       | 70 |   | (150 | ) |
| Amortization of intangible asset                                                      |       | 116                                         |       | 116 |   | 362 |   |
| Depreciation and amortization                                                         |       | 418                                         |       | 715 |   | 987 |   |
| Issuance of common stock warrants in connection with  service agreements              |       | —                                      |       | — |   | 25 |   |
| Foreign currency transaction gain                                                     |       | —                                      |       | — |   | (36 | ) |
| Net changes in  operating assets and liabilities:                                     |       |                                        |       |   |   |   |   |
| Accounts receivable                                                                   |       | (1,272                                      | )          | (19 | ) | 1,230 |   |
| Prepaid expenses and other current assets                                             |       | 162                                         |       | 78 |   | 447 |   |
| Other assets                                                                          |       | (12                                         | )          | 48 |   | 109 |   |
| Accounts payable                                                                      |       | 1,407                                       |       | 724 |   | (364 | ) |
| Accrued expenses                                                                      |       | (292                                        | )          | (1,302 | ) | (844 | ) |
| Deferred revenue                                                                      |       | 72                                          |       | (219 | ) | (300 | ) |
| Other                                                                                 |       | —                                      |       | — |   | (84 | ) |
| Net cash used in operating activities                                                 |       | (5,342                                      | )          | (8,722 | ) | (4,196 | ) |
| Cash flows from  investing activities:                                                |       |                                        |       |   |   |   |   |
| Redemptions of short-term investments                                                 |       | 13,718                                      |       | 30,995 |   | 24,911 |   |
| Purchases of short-term investments                                                   |       | (6,799                                      | )          | (28,305 | ) | (19,242 | ) |
| Proceeds from sale of investment in Finance All K.K                                   |       | —                                      |       | — |   | 8,878 |   |
| Purchases of property and equipment                                                   |       | (128                                        | )          | (142 | ) | (80 | ) |
| Net cash provided by investing activities                                             |       | 6,791                                       |       | 2,548 |   | 14,467 |   |
| Cash flows from financing  activities:                                                |       |                                        |       |   |   |   |   |
| Proceeds from issuance of common stock through stock  plans                           |       | 98                                          |       | 402 |   | 133 |   |
| Repurchases of common stock                                                           |       | (1,738                                      | )          | — |   | (4,221 | ) |
| Repayment of debt                                                                     |       | (70                                         | )          | (117 | ) | (3,342 | ) |
| Net cash provided by (used in) financing activities                                   |       | (1,710                                      | )          | 285 |   | (7,430 | ) |
| Net (decrease)  increase in cash and cash equivalents                                 |       | (261                                        | )          | (5,889 | ) | 2,841 |   |
| Cash and cash  equivalents, beginning of year                                         |       | 9,334                                       |       | 15,223 |   | 12,382 |   |
| Cash and cash  equivalents, end of year                                               |       | $                                           | 9,073      |   | $ | 9,334 |   | $ | 15,223 |   |
| Cash paid during the  year for interest                                               |       | $                                           | —     |   | $ | — |   | $ | 86 |   |

 

See accompanying notes.

F-6

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**INSWEB CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**Business of InsWeb

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 has combinedextensive knowledge of the insurance industry, technological expertise andclose relationships with a significant number of insurance companies to developan integrated online marketplace.

InsWeb’s 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 aparticipating insurance provider or local agent, or from a commission earned byInsWeb’s insurance agencies, 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.

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 actual resultsto differ materially from historical results or those currently anticipated. Inlight of the evolving nature of InsWeb’s business to better capitalize on itsposition as a leading insurance portal, including the current expansion ofInsWeb’s agent network program, InsWeb believes that period-to-periodcomparisons of its operating results are not necessarily meaningful and shouldnot be relied upon as an indication of future performance. Moreover, there isno assurance that InsWeb will be able to achieve or sustain profitability.

InsWeb has incurredoperating losses of $6.3 million in 2005, $9.2 million in 2004, and $7.0million in 2003, and as of December 31, 2005, our accumulated deficit was$188.6 million. In addition, InsWeb’s operating activities to datehave consumed substantial amounts of cash, cash equivalents and short-terminvestments ($5.3 million in 2005, $8.7 million in 2004, and $4.2 million in2003) and will continue to require capital in the near future. At December 31,2005, InsWeb had $10.3 million in cash, cash equivalents and short-terminvestments. The losses and the related accumulated deficit are a resultof the significant costs incurred in the development of InsWeb’s technologyplatform, the establishment of relationships with insurance companies, theirintegration with the InsWeb site, and InsWeb’s marketing and sales activities. In orderto remain competitive, the Company must continue to make investments essentialto its ability to operate, and InsWeb intends to continue to invest inproduct development and maintenance, and sales and marketing. In addition, theCompany will continue to incur the costs associated with continuing to functionas a publicly listed company, including the costs of compliance with theprovisions of the Sarbanes-Oxley Act of 2002, among other things, even thoughthe Company will not be required tocomply with Section 404 of the Sarbanes-Oxley Act until 2007. As aresult, InsWeb believes 

F-7

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that itwill continue to incur operating losses for at least the next year. In theevent that InsWeb is unable to generate revenues sufficient to offset itscosts, or if its costs of marketing and operations are greater than itanticipates, the Company may be unable to grow its business at the rate desiredor may be required to delay, reduce, or cease certain of its operations, any ofwhich could materially harm its business and financial results. Inaddition, if InsWeb is unable to ultimately achieve profitability, the Companymay need to seek additional financing to continue its business operations. TheCompany cannot be certain that additional financing will be available whenrequired, on favorable terms or at all. If InsWeb is not successful in raisingadditional capital as required, it may delay, significantly reduce or ceasecertain of its operations, which could adversely affect its results ofoperations and financial position.

**2.**Summaryof Significant 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 ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could 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 are classifiedas short-term investments. Cash and cash equivalents are stated at cost, whichapproximates fair value, given the relatively short duration of the underlyingsecurities.

***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) collectibilityof 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.

F-8

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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 31,2005, 2004 and 2003 were $15,207,000, $8,327,000 and $8,916,000, 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 ofFinancial Accounting Standard No. 144, “*Accountingfor the Impairment or Disposal of Long-Lived Assets*” (“SFAS 144”).SFAS 144 requires the recognition of impairment losses related tolong-lived assets in the event the net carrying value of such assets exceedsfair value. InsWeb assesses the impairment of its long-lived assets annually orwhen events or changes in circumstances indicate that the carrying value of anasset may not be recoverable.

***Concentration of risk—credit***

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 short-term investments consist of diversifiedinvestment grade securities. InsWeb’s investment policy limits the amount ofcredit exposure to investments in any one issue, and InsWeb believes nosignificant concentration of credit risk exists with respect to theseinvestments.

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 collectibility is uncertain.The Company has not experienced significant credit losses to 

F-9

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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 31,2005, one customer (NetQuote) accounted for 27% of total revenues. For the yearended December 31, 2004, one customer (Progressive) accounted for 10% oftotal revenues. For the year ended December 31, 2003, three customers(Progressive, GE Financial Assurance and American Family) accounted for 14%,14% and 10% of total revenues, respectively. At December 31, 2005, threecustomers (AIG, GEFA, and NetQuote) accounted for 24%, 11%, and 11% of accountsreceivable, respectively.At December 31, 2004,one customer (Progressive) accounted for 14% of accounts receivable.

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

Basic net income (loss) per share is computed usingthe weighted-average number of shares of common stock outstanding.Diluted earnings per share is a measure of the potential dilution that wouldoccur if stock options and warrants had been exercised. In 2005 and 2004,potentially dilutive securities have been excluded from the computation ofdiluted net loss per share, as their effect would be antidilutive.

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

| ** **                                                      | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                      | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| *(In thousands, except per share  amounts)*                     | * *   | * *                                   | * *   | * * | * * | * * | * * |
| Numerator for basic and  diluted net income (loss) per share:   |       |                                       |       |   |   |   |   |
| Net income (loss) available to common stockholders              |       | $                                          | (5,941     | ) | $ | (8,933 | ) | $ | 1,046 |   |
| Denominator for net  income (loss) per share:                   |       |                                       |       |   |   |   |   |
| Basic—weighted average shares of common stock  outstanding |       | 4,234                                      |       | 4,711 |   | 5,030 |   |
| Dilutive effect of employee stock options                       |       | —                                     |       | — |   | 253 |   |
| Diluted                                                         |       | 4,234                                      |       | 4,711 |   | 5,283 |   |
| Net income (loss)  per share:                                   |       |                                       |       |   |   |   |   |
| Basic—as reported                                          |       | $                                          | (1.40      | ) | $ | (1.90 | ) | $ | 0.21 |   |
| Diluted—as  reported                                       |       | $                                          | (1.40      | ) | $ | (1.90 | ) | $ | 0.20 |   |

 

Potentially dilutivesecurities that are not included in the diluted net income (loss) calculationbecause they would be antidilutive are employee stock options of 679,000 as of December 31,2005, 273,000 as of December 31, 2004 and 1,190,000 as of December 31,2003, and common stock warrants of 17,000 as of December 31, 2003.

***Other comprehensive income (loss)***

Other comprehensive income(loss) includes reclassification adjustments and changes in unrealized gains(losses) on investments.

***Stock-based compensation***

At December 31, 2005, InsWeb had two stock-basedemployee compensation plans, which are described more fully in Note 11.InsWeb accounts for these plans under the recognition and measurement principlesof Accounting Principles Board Opinion No. 25, “Accounting for StockIssued to Employees,” 

F-10

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and relatedinterpretations (“APB 25”). Under APB 25, stock-based compensationexpense is based on the difference, if any, between the fair value of InsWeb’s stockand the exercise price of the option on the measurement date, which istypically the date of grant.

InsWeb accounts for options granted to non-employeesin accordance with the provisions of Emerging Issues Task Force Issue No. 96-18,“Accounting for Equity Instruments that are Issued to Other Than Employees forAcquiring, or in Conjunction with Selling Goods and Services.” Under theseprovisions, options are recorded at their estimated fair value on themeasurement date.

Thefollowing table illustrates the effect on net income (loss) and net income(loss) per share if InsWeb had applied the fair value recognition provisions ofFinancial Accounting Standards Board Statement No. 148, “*Accounting for Stock-Based Compensation—Transition and Disclosure,*” to stock-based employeecompensation. The fair value of each option grant is estimated on the date ofgrant using the Black-Scholes multiple option-pricing model.

| ** **                                                                                                  | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| *(In thousands, except per share  amounts)*                                                                 | * *   | * *                                   | * *   | * * | * * | * * | * * |
| Net income  (loss), as reported                                                                             |       | $                                          | (5,941     | ) | $ | (8,933 | ) | $ | 1,046 |   |
| Deduct: Stock-based  employee compensation expense determined under fair value based method for  all awards |       | (1,009                                     | )          | (586 | ) | (1,517 | ) |
| Pro forma net  loss                                                                                         |       | $                                          | (6,950     | ) | $ | (9,519 | ) | $ | (471 | ) |
| Net income (loss)  per share:                                                                               |       |                                       |       |   |   |   |   |
| Basic—as reported                                                                                      |       | $                                          | (1.40      | ) | $ | (1.90 | ) | $ | 0.21 |   |
| Diluted—as reported                                                                                    |       | $                                          | (1.40      | ) | $ | (1.90 | ) | $ | 0.20 |   |
| Basic—pro forma                                                                                        |       | $                                          | (1.64      | ) | $ | (2.02 | ) | $ | (0.09 | ) |
| Diluted—pro forma                                                                                      |       | $                                          | (1.64      | ) | $ | (2.02 | ) | $ | (0.09 | ) |
| Stock-based  compensation costs included in the determination of net income (loss), as  reported            |       | $                                          | —     |   | $ | — |   | $ | 25 |   |

 

For the purpose of proforma disclosures, the estimated fair value of the options is amortized overthe options’ vesting periods. The above pro forma disclosures are notnecessarily representative of the effects on reported income or loss for futureperiods as additional grants are made each year and options vest over severalyears.

***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.

***Recently issued accounting standards***

**Statement ofFinancial Accounting Standard No. 123(R)**

In December 2004, the Financial AccountingStandards Board (“FASB”) issued Statement 123(R), “*Share-Based Payment*” (“FAS 123(R)”) which requires all companies to measurecompensation cost for all share-based payments (including employee stockoptions) at fair value. In April 2005, the SEC issued a release whichamends the compliance dates for FAS 123(R). InsWeb will adopt the newaccounting provisions beginning in the first quarter of 2006 using the modifiedprospective transition method.

F-11

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As discussed in Note 11,in October 2005, the Compensation Committee of the Board of Directors ofInsWeb Corporation approved the acceleration of vesting of all stock optionsoutstanding. As a result, the Company expects the adoption of the FAS 123(R) will not have asignificant effect on earnings or financial position. Stock option expenseafter the adoption of FAS 123(R) willbe dependent on the levels of share-based payments granted in the future.

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

Cashand cash equivalents consist of the following (in thousands):

| ** **              | ** ** | **December 31,** | ** ** |
|-------------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Cash                    |       | $                     | 1,164      |   | $ | 675 |   |
| Money market  funds     |       | 448                   |       | 957 |   |
| Commercial paper        |       | 4,215                 |       | 6,105 |   |
| U.S. Agency  securities |       | 3,246                 |       | 1,597 |   |
|                    |       | $                     | 9,073      |   | $ | 9,334 |   |

 

InsWeb accounts for its short-term investments underStatement of Financial Accounting Standards No. 115, “*Accounting forCertain 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 income (loss) instockholders’ equity. The cost of securities sold is based on the specificidentification method.

InsWeb’sinvestment portfolio consists of the following (in thousands):

| ** **              | ** ** | **December 31,** | ** ** |
|-------------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Available-for-sale:     |       |                  |       |   |   |
| Money market funds      |       | $                     | 448        |   | $ | 957 |   |
| Certificates of deposit |       | 306                   |       | 2,247 |   |
| Commercial paper        |       | 4,364                 |       | 6,703 |   |
| Corporate bonds         |       | 606                   |       | 1,991 |   |
| U.S. Agency securities  |       | 3,418                 |       | 4,906 |   |
|                    |       | $                     | 9,142      |   | $ | 16,804 |   |
| Cash equivalents        |       | $                     | 7,909      |   | $ | 8,659 |   |
| Short-term  investments |       | 1,233                 |       | 8,145 |   |
|                    |       | $                     | 9,142      |   | $ | 16,804 |   |

 

At December 31, 2005and 2004, the carrying value of available-for sale securities is shown net ofgross unrealized losses of $1,000 and $8,000, respectively, which are includedas a component of stockholders’ equity, and are attributable to InsWeb’sinvestments in commercial paper and other debt securities. At December 31,2005, the contractual maturities of InsWeb’s investment portfolio are less than

F-12

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oneyear. The gains and losses from the sale of available-for-sale securities havenot been significant to date.

**4.**PrepaidExpenses and Other Current Assets

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

| ** **        | ** ** | **December 31,** | ** ** |
|-------------------|------------|-----------------------|------------|
| ** **        | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Prepaid insurance |       | $                     | 227        |   | $ | 331 |   |
| Other             |       | 318                   |       | 376 |   |
|              |       | $                     | 545        |   | $ | 707 |   |

 

**5.**Property and Equipment

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

| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Computer and  office equipment |       | $                     | 4,643      |   | $ | 5,593 |   |
| Furniture and  fixtures        |       | 999                   |       | 1,208 |   |
| Leasehold  improvements        |       | 687                   |       | 687 |   |
| Software                       |       | 3,242                 |       | 3,220 |   |
|                           |       | 9,571                 |       | 10,708 |   |
| Less accumulated  depreciation |       | (9,047                | )          | (9,894 | ) |
|                           |       | $                     | 524        |   | $ | 814 |   |

 

Depreciation expense was$418,000, $715,000 and $891,000 for the years ended December 31, 2005,2004 and 2003, respectively.

**6.**Other Assets

Otherassets consist of the following (in thousands):

| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Deposits for  operating leases |       | $                     | 332        |   | $ | 332 |   |
| Intangible asset  (see Note 8) |       | —                |       | 116 |   |
| Other                          |       | 14                    |       | 2 |   |
|                           |       | $                     | 346        |   | $ | 450 |   |

 

**7.**FinanceAll K.K. (formerly InsWeb Japan K.K.)

In 1998, InsWeb entered into an agreement with astrategic partner and stockholder to develop, implement and market an onlineinsurance marketplace in Japan and the Republic of Korea. The venture wascarried out exclusively through InsWeb Japan K.K., a Japanese corporation, inwhich InsWeb owned an equity interest.

InsWeb’s investment in InsWeb Japan K.K. was purchasedin exchange for a promissory note payable to a stockholder. The promissory notewas payable in Japanese yen and accrued interest at 5% per annum, which waspayable quarterly. The promissory note, together with all accrued and unpaidinterest, was repaid in 2003. Interest expense related to this note for theyear ended December 31, 2003 was $58,000.

F-13

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In 2001, InsWeb and other investors entered into anagreement pursuant to which a new privately-held holding company, Finance AllK.K., controlled InsWeb Japan K.K. and two other Internet companies in whichInsWeb did not hold a financial interest (the “Reorganization”). The purpose ofthe Reorganization was to create a holding company that would collectivelycreate an online financial marketplace consisting of variousbusiness-to-consumer financial services. The online market place would provideservices in the insurance, consumer loan, and home loan (mortgage) marketplacein Japan and the Republic of Korea. In exchange for its shares in InsWeb JapanK.K., InsWeb acquired an ownership interest in Finance All K.K.

Subsequentto the Reorganization, the Company revalued its investment in Finance All K.K.at the applicable foreign currency exchange rate and the resulting foreigncurrency gain (loss) was included in the consolidated statement of operationsas a component of interest and other income, net. In 2003, InsWeb sold itsinvestment in Finance All K.K. for gross proceeds of $8,878,000 and recognizeda related gain of $6,838,000, including the cumulative translation adjustmentof $211,000. The gain on sale of this investment was included as a component ofinterest and other income, net. For the year ending December 31, 2003, theCompany recognized foreign currency gains of $36,000.

**8. Intuit Insurance Services, Inc.**

In January 2001, InsWeb acquired from Intuit, Inc.certain assets and related liabilities associated with an online insuranceshopping and purchasing service operated by Intuit Insurance Services, Inc.,a wholly-owned subsidiary of Intuit for $30,117,000, comprised of commonstock and fixed payments due over the term of a license and distributionagreement. In connection with the acquisition, InsWeb and Intuit entered into alicense and distribution agreement under which Intuit and InsWeb granted oneanother licenses to create links between their respective websites in order tocreate and operate a co-branded insurance center. InsWeb recorded an intangibleasset of $30,117,000 in connection with this transaction. The fair value of theintangible asset was estimated based on the expected cash flows from theInternet traffic to be received from Intuit by InsWeb.

In 2003, as a result of significantly lower thananticipated traffic levels, InsWeb reassessed the recoverability of the assetsrecorded in connection with this transaction by comparing the estimated futureundiscounted cash flows expected to be generated relating to this asset to itscarrying amount. Based on these evaluations, InsWeb determined that theacquired asset was impaired, as the carrying value of the asset was in excessof fair value, and therefore recorded an impairment charge of $214,000. Thefair value of the acquired asset was based on estimated future cash flows to begenerated from the Internet traffic to be received from Inuit by InsWeb,discounted using a rate commensurate with the risk involved.

In 2002, InsWeb and Intuitamended their existing license and distribution agreement. In connection withthe amended license and distribution agreement with Intuit, effective August 1,2003 and through the remainder of the agreement (January 2006), InsWebmade variable payments to Intuit for a portion of the transaction fees receivedby InsWeb from the Intuit Internet traffic. For the years ending December 31,2005, 2004 and 2003, InsWeb made variable payments to Intuit of $62,000,$123,000 and $57,000, respectively.

F-14

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**9.**Accrued Expenses

Accruedexpenses consist of the following (in thousands):

| ** **                               | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Accrued employee  compensation           |       | $                     | 586        |   | $ | 559 |   |
| Deferred rent                            |       | 527                   |       | 522 |   |
| Accrued marketing  fees                  |       | 76                    |       | 162 |   |
| Accrued lease  obligations (see Note 10) |       | 1,874                 |       | 2,172 |   |
| Other                                    |       | 31                    |       | 41 |   |
|                                     |       | $                     | 3,094      |   | $ | 3,456 |   |

 

**10.**Commitments andContingencies

***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, 2005 are summarized asfollows (in thousands):

| **Years ending December 31,** | ** ** | ** ** | ** ** | **Gross lease  commitments** | ** ** | **Sublease  income** | ** ** | **Net lease  commitment** | ** ** |
|----------------------------------------------|------------|------------|------------|-----------------------------------|------------|----------------------|------------|--------------------------------|------------|
| 2006                                         |       |       | $          | 3,391                             |       |                 | $          | (2,030                         | )          |   | $ | 1,361 |   |   |
| 2007                                         |       |       | 3,483      |                              |       | (2,100               | )          |                           | 1,383      |   |   |
| 2008                                         |       |       | 2,936      |                              |       | (1,615               | )          |                           | 1,321      |   |   |
| 2009                                         |       |       | 1,078      |                              |       | —               |       |                           | 1,078      |   |   |
| 2010                                         |       |       | 1,078      |                              |       | —               |       |                           | 1,078      |   |   |
| Thereafter                                   |       |       | 359        |                              |       | —               |       |                           | 359        |   |   |
|                                         |       |       | $          | 12,325                            |       |                 | $          | (5,745                         | )          |   | $ | 6,580 |   |   |

 

Rent expense for the years ended December 31,2005, 2004, and 2003 was $999,000, $990,000 and $985,000 (net of subleaserental income of $1,961,000, $1,983,000 and $2,074,000), respectively.

Security deposits payable (under sublease agreements)as of December 31, 2005 and 2004 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 $5,385,000, through the remainder of thelease. However, the sublessee is a start-up 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.

F-15

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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 obligation of formerlyoccupied facilities was $1,874,000 at December 31, 2005. If theseestimates or their related assumptions change in the future, InsWeb may berequired to record a charge to increase its existing accrual.

***eHealthInsuranceLitigation***

In February 2001, InsWeb temporarily suspendedits online health insurance quoting services due to the decision byeHealthInsurance, Inc., formerly InsWeb’s exclusive provider of onlinehealth insurance quotes, to unilaterally terminate their marketing agreement.eHealthInsurance filed suit in the U.S. District Court for Northern Californiaalleging InsWeb’s failure to perform its obligations under the agreement. In March 2001,InsWeb filed a counterclaim alleging that eHealthInsurance wrongfullyterminated the agreement and pursued a course of conduct aimed at damagingInsWeb’s business. In March 2003, InsWeb and eHealthInsurance agreed tosettle ongoing litigation in the U.S. District Court for the NorthernCalifornia. Although specific terms of the settlement agreement areconfidential, eHealthInsurance agreed to pay InsWeb $800,000 for the servicesperformed by InsWeb prior to the termination of the marketing agreement. Inaddition, the parties released all claims against each other relating to themarketing agreement.

***SecuritiesClass Action Lawsuit***

A securities class action lawsuit was filed on December 5,2001 in the United States District Court for the Southern District of New York,(the “Court”) purportedly on behalf of all persons who purchased our commonstock from July 22, 1999 through December 6, 2000. The complaintnamed as defendants InsWeb, certain current and former officers and directors,and three investment banking firms that served as underwriters for InsWeb’sinitial public offering in July 1999. The complaint, as subsequentlyamended, alleges violations of Sections 11 and 15 of the Securities Act of 1933and Sections 10 and 20 of the Securities Exchange Act of 1934, on the groundsthat the prospectuses incorporated in the registration statements for theoffering failed to disclose, among other things, that (i) the underwritershad solicited and received excessive and undisclosed commissions from certaininvestors in exchange for which the underwriters allocated to those investorsmaterial portions of the shares of our stock sold in the offerings and (ii) theunderwriters had entered into agreements with customers whereby theunderwriters agreed to allocated shares of the stock sold in the offering tothose customers in exchange for which the customers agreed to purchaseadditional shares of InsWeb stock in the aftermarket at pre-determined prices.No specific damages are claimed. Similar allegations have been made in lawsuitsrelating to more than 300 other initial public offerings conducted in 1999 and2000, all of which have been consolidated for pretrial purposes. In October 2002,all claims against the individual defendants were dismissed without prejudice.In February 2003, the Court dismissed the claims in the InsWeb actionalleging violations of the Securities Exchange Act of 1934 but allowed theplaintiffs to proceed with the remaining claims. In June 2003, theplaintiffs in all of the cases presented a settlement proposal to all of theissuer defendants. Under the proposed settlement, the plaintiffs will dismissand release all claims against participating defendants in exchange for acontingent payment guaranty by the insurance companies collectively responsiblefor insuring the issuers in all the related cases, and the assignment orsurrender to the plaintiffs of certain claims the issuer defendants may haveagainst the underwriters. InsWeb and most of the other issuer defendants haveaccepted the settlement proposal. In September 2005, the Court issued anorder providing preliminary approval of the proposed settlement and set ahearing for April 24, 2006 to consider final approval of the settlement.If the Court does not approve the settlement, InsWeb intends to defend thelawsuit vigorously. The litigation and settlement process is inherentlyuncertain and we cannot predict the outcome, though, if unfavorable, it couldhave a material adverse effect on InsWeb’s financial condition, results ofoperations and cash flows.

F-16

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**11.**Stockholders’ Equity

***Negotiated common stock repurchases***

In March 2005, the Board of Directors authorizedmanagement to repurchase 755,821 shares of InsWeb common stock, consisting of531,947 shares held by Nationwide Mutual Insurance Company and 223,874 sharesheld by Century Capital Partners, L.P. These shares represented 16% of InsWeb’stotal outstanding common stock at that date and were purchased for $1,738,000,or $2.30 per share. Subsequent to the closing of these transactions, NationwideMutual and Century Capital held no shares.

In 2003, the Board ofDirectors authorized management to repurchase 2,241,440 shares of InsWeb’scommon stock, consisting of 1,169,898 shares held by Intuit InsuranceServices, Inc. and 1,071,542 shares held by SOFTBANK America, Inc.The shares were purchased for $3,810,000, or $1.70 per share. With the closingof this transaction, SOFTBANK Corporation’s holdings of InsWeb common stockwere reduced to 353,032 shares, while Intuit Insurance Services, Inc. heldno shares.

***Common stock repurchase program***

In January 2003, InsWeb implemented a voluntaryno-cost program through which stockholders holding fewer than 100 shares ofInsWeb’s common stock were given the option to sell their shares back to theCompany at $2.35 per share. In total, 5,377 shares were repurchased throughthis program at a total cost of $13,000. This program expired inMarch 2003.

***Stock option plans***

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.This option grant is in lieu of previously granted options for each Board orcommittee meeting attended. The Option Plan provides for an automatic annualincrease in the share reserve, to be effective on the first day of each fiscalyear, by a number of shares equal to 5% of the number of common sharesoutstanding as of the last day of the preceding fiscal year. Options grantedunder both plans are priced at the fair market value on the date of grant andgenerally vest in equal monthly installments over a one to three year period,except for certain options granted to members of InsWeb’s Board of Directors,which vest immediately. Options generally expire ten years from the date ofgrant.

F-17

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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, 2002                |       |                                      | 482        |                    |       |                                           | 1,275      |   |   |   | $ | 20.08 |   |   |
| Additional shares  reserved                      |       |                                      | 347        |                    |       |                                           | —     |   |   |   | — |   |   |
| Granted                                          |       |                                      | (584       | )                       |       |                                           | 584        |   |   |   | $ | 2.69 |   |   |
| Exercised                                        |       |                                      | —     |                    |       |                                           | (8         | ) |   |   | $ | 2.98 |   |   |
| Canceled/forfeited                               |       |                                      | 120        |                    |       |                                           | (120       | ) |   |   | $ | 15.68 |   |   |
| 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        |                    |       |                                           | 1,471      |   |   |   | $ | 6.98 |   |   |

 

***Accelerated vesting of employee stock options***

On October 19, 2005, the Compensation Committeeof the Board of Directors of InsWeb Corporation approved the acceleration ofvesting of all stock options outstanding as of October 19, 2005 held byemployees and the Company’s Section 16 officers (the “Acceleration”). 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, remainunchanged. As a result of the Acceleration, the Company expects to reduce itsexposure to the effects of FAS 123(R),which will require companies to recognize stock-based compensation expenseassociated with stock options based on the fair value method.

Optionsoutstanding and currently exercisable by exercise price at December 31,2005 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-$2.05                                                           |       |                         | 223        |                                        |       |   | 7.24 |   |   |   | 223 |   |   |   | $ | 2.03 |   |   |
| $2.21-$2.79                                                           |       |                         | 202        |                                        |       |   | 9.09 |   |   |   | 202 |   |   |   | $ | 2.79 |   |   |
| $2.81-$3.25                                                           |       |                         | 253        |                                        |       |   | 9.09 |   |   |   | 253 |   |   |   | $ | 3.00 |   |   |
| $3.32-$4.75                                                           |       |                         | 178        |                                        |       |   | 7.83 |   |   |   | 178 |   |   |   | $ | 4.50 |   |   |
| $4.76-$4.95                                                           |       |                         | 281        |                                        |       |   | 6.26 |   |   |   | 281 |   |   |   | $ | 4.95 |   |   |
| $4.97-$7.13                                                           |       |                         | 233        |                                        |       |   | 6.97 |   |   |   | 233 |   |   |   | $ | 5.57 |   |   |
| $7.31-$270.00                                                         |       |                         | 94         |                                        |       |   | 4.17 |   |   |   | 94 |   |   |   | $ | 53.08 |   |   |
|                                                                  |       |                         | 1,464      |                                        |       |   | 7.46 |   |   |   | 1,464 |   |   |   | $ | 6.98 |   |   |
|                                                                       |            |                              |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-18

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Theper share weighted average fair value of options granted in 2005, 2004 and 2003of $1.51, $2.28 and $1.82, respectively, was estimated on the date of grantusing the Black-Scholes options pricing model with the followingassumptions:

| ** **                | ** ** | **Year Ended December  31,** | ** ** |
|---------------------------|------------|--------------------------------------------------|------------|
| ** **                | ** ** | **2005**                                         | ** ** | **2004** | ** ** | **2003** | ** ** |
| Risk-free  interest rate  |       | 4.0                                              | %          | 3.3 | % | 2.8 | % |
| Expected  volatility      |       | 0.58                                             |       | 0.57 |   | 0.88 |   |
| Expected life (in  years) |       | 4.78                                             |       | 4.76 |   | 4.79 |   |
| Assumed dividend yield    |       | 0                                                | %          | 0 | % | 0 | % |

 

***Employee stock purchase plan***

InsWeb has an EmployeeStock Purchase Plan (the “1999 Plan”) under which eligible employees mayauthorize payroll deductions of up to 15% of their compensation to purchaseshares at 85% of the lower of the fair market value of the common stock on thedate of commencement of the offering or on the last day of the six-monthpurchase period. During 2005, 2004 and 2003, 8,373, 7,574 and 19,034 shares,respectively, were distributed to employees at prices ranging from $1.84 pershare to $4.54 per share. The weighted average fair value of the 2005, 2004 and2003 awards were $2.48, $3.85 and $1.84 per share, respectively. At December 31,2005, InsWeb had 323,000 shares of its common stock reserved for futureissuance under the 1999 Plan. The number of shares of common stock issuableunder the 1999 Plan is increased by 50,000 shares each year until January 1,2008.

***Common stock warrants***

In connection with aconsulting agreement with a third party entered into during 2003, InsWeb issuedwarrants to purchase an aggregate of 17,088 shares of InsWeb’s common stock ata purchase price of $4.59 per share. The warrants became exercisable on October 23,2003 and were surrendered and cancelled on October 23, 2004. The fairvalue of the warrants of $25,000 was derived using the Black-Scholesoption-pricing model.

**12. Income Taxes**

As of December 31, 2005 and 2004, InsWeb had netoperating loss carry forwards of approximately $185,000,000 and $173,000,000for federal income tax purposes and $117,000,000 and $104,000,000 for stateincome tax purposes, respectively. The federal and state net operating loss carryforwards begin to expire in the years 2011 and 2006, respectively. 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 limit, on an annual basis, InsWeb’s futureuse of its net operating loss carry forwards. The amount, if any, of suchlimitations has not yet been determined.

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

| ** **                         | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Net operating  loss carry forwards |       | $                     | 69,728     |   | $ | 64,781 |   |
| Tax credit carry  forwards         |       | 1,228                 |       | 1,228 |   |
| Accruals and  allowances           |       | 8,304                 |       | 8,437 |   |
| Other                              |       | (5,052                | )          | (4,000 | ) |
|                               |       | 74,208                |       | 70,446 |   |
| Less valuation  allowance          |       | (74,208               | )          | (70,446 | ) |
| Net deferred tax asset             |       | $                     | —     |   | $ | — |   |

 

F-19

----

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, 2005, 2004 and 2003 increased by$3,762,000, $3,758,000 and $1,400,000, respectively. Deferred tax assetsrelating to net operating loss carry forwards for federal and state purposes asof December 31, 2005 and 2004 include approximately $3,140,000 associated with stockcompensation activity for which subsequent realized tax benefits, if any, willbe credited directly to equity in the future.

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

| ** **                                       | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** |
| Federal tax  (benefit) at statutory rate         |       |                  | 34         | % |   |   | 34 | % |   |   | 34 | % |   |
| State taxes, net  of federal benefit             |       |                  | —     | % |   |   | — | % |   |   | — | % |   |
| Other                                            |       |                  | —     | % |   |   | — | % |   |   | 1 | % |   |
| Adjustment due to  change in valuation allowance |       |                  | (34        | )% |   |   | (34 | )% |   |   | (35 | )% |   |
| Provision for income  taxes                      |       |                  | 0          | % |   |   | 0 | % |   |   | 0 | % |   |

 

**13. 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 2005, 2004 and 2003 were$151,000, $161,000 and $219,000, respectively.

**14. QuarterlyFinancial Information (unaudited)**

| ** **                                                                           | ** ** | **Quarter ended** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|
| ***(amounts in thousands, except per share amounts)*** | ** ** | **Mar. 31**       | ** ** | **Jun. 30** | ** ** | **Sept. 30** | ** ** | **Dec. 31** | ** ** |
| **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 | ) |
| **Fiscal  2004:**                                                                    |       |                   |       |   |   |   |   |   |   |
| Total revenues                                                                       |       | $                      | 4,055      |   | $ | 3,366 |   | $ | 3,375 |   | $ | 3,864 |   |
| Operating expenses                                                                   |       | 6,086                  |       | 5,941 |   | 5,679 |   | 6,122 |   |
| Loss from operations                                                                 |       | (2,031                 | )          | (2,575 | ) | (2,304 | ) | (2,258 | ) |
| Other income (expense), net                                                          |       | 71                     |       | 44 |   | 80 |   | 40 |   |
| Net loss                                                                             |       | $                      | (1,960     | ) | $ | (2,531 | ) | $ | (2,224 | ) | $ | (2,218 | ) |
| Net loss per  share—basic and diluted                                           |       | $                      | (0.42      | ) | $ | (0.54 | ) | $ | (0.47 | ) | $ | (0.46 | ) |

 

F-20

----

**Item 9. Changes in and Disagreements With Accountantson Accounting and Financial Disclosure.**

None.

**Item 9A. Controls and 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, 2005 that has materially affected, or is reasonablylikely to affect, the Company’s internal control over financial reporting.

**Item 9B. Other Information.**

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. Directors and Executive Officers of theRegistrant.**

The information required by this Item is incorporatedby reference to information set forth in our definitive proxy statement underthe heading “Management” and in Part I of this report under the heading “ExecutiveOfficers of the Registrant.”

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 CorporateGovernance Materials.”

**Item 11. Executive Compensation.**

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

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**Item12. Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder 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.”

**Item 13. Certain Relationships and RelatedTransactions.**

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. Principal Accountant 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 andServices.”

**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 following financial statement schedule of InsWebCorporation for the years ended December 31, 2005, 2004 and 2003 is filedas part of this report and should be read in conjunction with the consolidatedfinancial statements of InsWeb Corporation.

Schedule II—Valuation and 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.

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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 29, 2006.
|        | 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 29, 2006 |
| Hussein  A. Enan           |          | Officer                                       |       |                |
| /s/ WILLIAM D.  GRIFFIN    |          | Chief Financial  Officer                      |       | March 29, 2006 |
| William  D. Griffin        |          | (Principal Financial and  Accounting Officer) |       |                |
| /s/ JAMES M.  CORROON      |          | Vice Chairman of  the Board                   |       | March 29, 2006 |
| James  M. Corroon          |          |                                          |       |                |
| /s/ DENNIS H.  CHOOKASZIAN |          | Director                                      |       | March 29, 2006 |
| Dennis  H. Chookaszian     |          |                                          |       |                |
| /s/ THOMAS W.  ORR         |          | Director                                      |       | March 29, 2006 |
| Thomas  W. Orr             |          |                                          |       |                |
| /s/ ROBERT A.  PUCCINELLI  |          | Director                                      |       | March 29, 2006 |
| Robert A.  Puccinelli      |          |                                          |       |                |

 

 

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**INSWEBCORPORATION**

**EXHIBITS TO FORM 10-K ANNUAL REPORTFOR THE YEAR ENDED DECEMBER 31, 2005**
| Exhibit   Number | ** ** | **Description of Document**                                                                                                                                                                       |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Asset Purchase Agreement by and between Registrant,  Intuit Insurance Services, Inc. and Intuit Inc., dated as of  November 25, 2000.(1)                                                |
| 2.2†        |       | License and Distribution  Agreement by and between Registrant and Intuit Inc., dated as of  January 24, 2001.(1)                                                                             |
| 2.3†        |       | Second Amendment to  License and Distribution Agreement by and between Registrant and Intuit Inc.,  dated as of March 28, 2002.(2)                                                           |
| 3.1              |       | Amended and Restated  Certificate of Incorporation of Registrant.(3)                                                                                                                              |
| 3.2              |       | Bylaws of Registrant.(3)                                                                                                                                                                          |
| 4.1              |       | Fourth Amended and  Restated Investor Rights Agreement between Registrant and certain  Stockholders of Registrant, dated as of January 24, 2001.(4)                                          |
| 10.1*            |       | Form of  Indemnification Agreement between Registrant and Registrant’s directors and  officers.(3)                                                                                      |
| 10.2*            |       | Registrant’s 1997 Stock  Option Plan.(3)                                                                                                                                                     |
| 10.3*            |       | Registrant’s 1999  Employee Stock Purchase Plan.(3)                                                                                                                                          |
| 10.5             |       | Joint Venture Agreement  by and between Registrant and SOFTBANK Corp., dated as of December 15,  1998.(5)                                                                                    |
| 10.6             |       | Shareholders Agreement  by and among SOFTBANK Finance Corporation, Registrant, E-LOAN, Inc.  and Marsh & McLennan Risk Capital Holdings, Ltd., dated as of  March 28, 2001.(6) |
| 10.7†       |       | License Agreement  between Registrant and Yahoo! Inc., dated as of February 12, 1999.(7)                                                                                                     |
| 10.8†       |       | Third Amendment to  License Agreement between Registrant and Yahoo! Inc., dated as of  September 24, 2001.(6)                                                                                |
| 10.11            |       | Lease Agreement between  Registrant and Oates/Allegheny Venture I, LLC, dated September 29,  2000.(8)                                                                                   |
| 10.12            |       | Third Amendment to  Sublease Agreement between Registrant and Seven Networks, Inc., dated  May 1, 2002.(9)                                                                              |
| 10.13†      |       | Fifth Amendment to  License Agreement between Registrant and Yahoo! Inc., dated as of  September 30, 2002.(9)                                                                                |
| 10.14            |       | Promissory Note between  Registrant and SOFTBANK Finance Corporation, dated March 13, 2003.(9)                                                                                               |
| 10.15            |       | Stock Purchase Agreement  between Registrant and SOFTBANK Ventures, Inc., dated December 12,  2002.(9)                                                                                  |
| 10.16*           |       | InsWeb Corporation Executive Retention and Severance Plan.(10)                                                                                                                                    |
| 10.17            |       | Stock Purchase Agreement  between Registrant and Softbank America, Inc., dated February 20,  2003.(11)                                                                                  |

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| 10.18 |   | Stock Purchase Agreement  between Registrant and Intuit Insurance Services, Inc., dated  February 20, 2003.(11)                           |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.20 |   | Compensation Arrangements  for Named Executive Officers.(12)                                                                                        |
| 14.1  |   | Code of Business Conduct  and Ethics.(11)                                                                                                           |
| 21.1  |   | Subsidiaries of  Registrant.(12)                                                                                                                    |
| 23.1  |   | Consent of Independent  Registered Public Accounting Firm.(12)                                                                                      |
| 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.(12) |
| 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.(12) |
| 32.1  |   | Certification of Chief  Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C.  Section 1350.(12)                           |

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(1)          Incorporated byreference to identically numbered exhibit to Registrant’s Current Report on Form 8-Kfiled on February 8, 2002.

(2)          Incorporated byreference to identically numbered exhibit to Registrant’s Quarterly Report on Form 10-Qfor the quarter ended March 31, 2002.

(3)          Incorporated by referenceto identically numbered exhibit to Registrant’s Registration Statement on Form S-1(File No. 333-78095), as amended (the “Form S-1”).

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

(5)          Incorporated byreference to Exhibit 10.16 to the Form S-1.

(6)          Incorporated byreference to identically numbered exhibit to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2001.

(7)          Incorporated byreference to Exhibit 10.18 to the Form S-1.

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

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

(10)   Incorporated by reference to Exhibit 10.13to Registrant’s Quarterly Report on Form 10-Q for the three monthsended June 30, 2004.

(11)   Incorporated by reference toidentically numbered exhibit to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2003.

(12)   Filed herewith.

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

*                    Constitutes amanagement contract or a compensatory plan or arrangement.

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**INSWEBCORPORATION**

**SCHEDULEIIVALUATION 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, 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 |   |   |
| Year ended  December 31, 2003: |       |       |       |                                           |       |                                          |       |                                 |       |           |       |                                     |       |   |   |   |   |   |   |   |   |
| Allowance for doubtful  accounts    |       |       | $          | 58,000                                         |       |                                          |       | $                                    | —     |           |       |                                     | $          | — |   |   |   | $ | (11,000 | ) |   |   | $ | 47,000 |   |   |

 

 

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