<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------- -----------------
COMMISSION FILE NUMBER 0-26083
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INSWEB CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-3220749
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
901 MARSHALL STREET
REDWOOD CITY, CALIFORNIA 94063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
-----------
(650) 298-9100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- -------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No [ ]
The number of outstanding shares of the Registrant's Common Stock, par value
$0.001 per share, on April 30, 2000 was 35,145,710 shares.
<PAGE>
FORM 10-Q
INSWEB CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
(unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 10
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk 26
PART II OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K 27
Signature 28
Exhibits 29
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSWEB CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31,
(UNAUDITED) 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $45,569,153 $25,688,760
Short-term investments 30,687,659 64,063,070
----------------- ----------------
Total cash, cash equivalents and short-term investments 76,256,812 89,751,830
Accounts receivable, net of allowance of $117,776 and $141,780 at
March 31, 2000 and December 31, 1999, respectively 4,696,877 4,267,691
Prepaid expenses and other current assets 6,708,975 2,974,024
----------------- ----------------
Total current assets 87,662,664 96,993,545
Property and equipment, net 8,980,621 7,356,863
Investment in joint venture 1,481,823 1,449,597
Intangible assets, net 4,785,832 5,568,094
Long Term Investments 4,981,799 4,978,761
Deposits and other assets 1,959,180 1,934,045
----------------- ----------------
Total assets $109,851,919 $118,280,905
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,544,955 $288,974
Accrued expenses 5,517,763 4,891,332
Deferred revenue 308,188 182,618
----------------- ----------------
Total current liabilities 7,370,906 5,362,924
Note payable to strategic partner 1,460,138 1,464,558
Deferred rent 352,785 268,601
----------------- ----------------
Total liabilities 9,183,829 7,096,083
----------------- ----------------
Stockholders' equity:
Convertible preferred stock, $0.001 par value.
Authorized: 5,000,000 shares, No shares issued or outstanding - -
Common stock, $0.001 par value. Authorized: 150,000,000
Issued and outstanding: 35,121,298 shares in 2000, 35,121 34,743
and 34,742,760, shares in 1999
Paid-in capital 189,977,584 188,222,780
Accumulated other comprehensive income 143,271 112,843
Common stock warrants 113,071 113,071
Deferred stock compensation (2,113,696) (2,887,995)
Accumulated deficit (87,487,261) (74,410,620)
----------------- ----------------
Total stockholders' equity 100,668,090 111,184,822
----------------- ----------------
Total liabilities and stockholders' equity $109,851,919 $118,280,905
================= ================
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------
(UNAUDITED)
2000 1999
---- ----
<S> <C> <C>
Revenues:
Transaction fees $7,089,509 $2,868,098
Development and maintenance fees 1,518,484 443,373
Other revenues 9,329 -
---------------------------------------
Total revenues 8,617,322 3,311,471
Operating expenses:
Product development 2,780,050 1,551,115
Sales and marketing 14,303,315 3,849,213
General and administrative 4,809,099 2,391,979
Amortization of intangible assets 782,262 782,262
Amortization of stock-based compensation 347,163 290,000
---------------------------------------
Total operating expenses 23,021,889 8,864,569
---------------------------------------
Loss from operations (14,404,567) (5,553,098)
Other income 50,510 -
Interest income (expense), net 1,277,416 (468,151)
---------------------------------------
Net loss $(13,076,641) $(6,021,249)
=======================================
Net loss per share-basic and diluted $(0.37) $(0.38)
=======================================
Weighted average shares used in computing net loss
per share-basic and diluted 34,912,129 15,976,336
=======================================
Pro forma net loss per share-basic and diluted $(0.37) $(0.24)
=======================================
Weighted average shares used in computing pro forma
net loss per share-basic and diluted 34,912,129 25,456,204
=======================================
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(13,076,641) $(6,021,249)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 691,031 323,455
Amortization of stock-based compensation 347,163 290,000
Gain on sale of equipment (10,151) -
Foreign currency translation gain on note payable (4,420) -
Amortization of intangible assets 782,262 782,262
Equity loss (gain) from joint venture (35,997) 4,280
Changes in assets and liabilities:
Accounts receivable (429,186) (1,375,529)
Prepaid expenses and other current assets (3,734,951) 261,790
Deposits and other assets (25,135) 2,875
Accounts payable 1,255,981 (347,443)
Accrued expenses 626,431 (34,747)
Deferred rent 84,184 -
Deferred revenue 125,570 68,767
--------------------------------------------
Net cash used in operating activities (13,403,859) (6,045,539)
--------------------------------------------
Cash flows from investing activities:
Sales of short term investments - net 33,409,611 -
Purchases of property and equipment (2,315,789) (756,764)
Other, net 8,112 -
--------------------------------------------
Net cash provided by (used in) investing activities 31,101,934 (756,764)
--------------------------------------------
Cash flows from financing activities:
Proceeds from issuance preferred stock - net - 28,195,089
Proceeds from issuance of common stock - 296,930
Proceeds from exercise of stock options 1,280,771 70,572
Proceeds from stock issued from Employee Stock Purchase Plan 901,547 -
Payment to Series B stockholder - (1,125,000)
Payment of note payable to officer - (25,000)
Payments on line of credit from affiliate - (19,290,000)
--------------------------------------------
Net cash provided by financing activities 2,182,318 8,122,591
--------------------------------------------
Net increase in cash and cash equivalents 19,880,393 1,320,288
Cash and cash equivalents, beginning of period 25,688,760 8,337,133
--------------------------------------------
Cash and cash equivalents, end of period $45,569,153 $9,657,421
============================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 15,738 $563,920
============================================
Supplemental schedule of noncash financing activities:
Receivable for sale of Series E preferred stock $ - 28,097,222
============================================
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of InsWeb
Corporation and its wholly owned subsidiaries, InsWeb Insurance Services,
Inc. (formerly Avatar Insurance Services, Inc.) and Benelytics, Inc. (the
"Company"). Benelytics, Inc. was purchased on December 31, 1998, and the
acquisition was accounted for as a purchase. As of March 31, 2000, InsWeb is
in the process of liquidating Benelytics, Inc. into InsWeb Corporation and
expects to have this liquidation completed by June 30, 2000. All significant
intercompany accounts and transactions have been eliminated in the
consolidated financial statements. Investments in 20 to 50 percent owned
affiliates are accounted for on the equity method. All common share and per
share amounts reflect a 10-for-1 split approved by the Board of Directors in
1997 and a 3-for-2 split authorized in June 1999.
The accompanying unaudited interim financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain
all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the Company's
financial position as of March 31, 2000 and results of operations and cash
flows for the three months ended March 31, 2000 and 1999, respectively. The
financial data and other information disclosed in these notes to the
condensed consolidated financial statements related to these periods are
unaudited. The results for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2000.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on March 30, 2000 and other information filed
with the Commission.
SIGNIFICANT CUSTOMERS
For the three months ended March 31, 2000, three customers accounted
for 29%, 11% and 10%, respectively, of total revenues. For the three months
ended March 31, 1999, three customers accounted for 32%, 13% and 11%,
respectively, of total revenues.
NET LOSS PER SHARE - BASIC AND DILUTED
Basic earnings per share is computed using the weighted average number
of shares of common stock outstanding. Diluted earnings per share reflects the
potential dilution that would occur if preferred stock had been converted and
stock options and warrants had been exercised. Common equivalent shares from
preferred stock, stock options and warrants have been excluded from the
computation of net loss per share-diluted as their effect is antidilutive.
Pro forma net loss per share-basic and diluted represents what the net
loss per share-basic and diluted would have been assuming the conversion of the
outstanding preferred stock as of the beginning of such periods.
RECLASSIFICATIONS
Certain amounts in the 1999 financial statements have been
reclassified to conform with the 2000 classifications.
6
<PAGE>
2. COMPREHENSIVE LOSS
Total comprehensive loss for the three months ended March 31, 2000 and
1999 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Net loss $(13,076,641) $(6,021,249)
Other comprehensive income (loss):
Foreign currency translation adjustments (3,772) -
Unrealized gain on investments 34,200 -
---------------------------------------
Total comprehensive loss $(13,046,213) $(6,021,249)
=======================================
</TABLE>
3. CASH AND INVESTMENTS
Cash and investments consist of the following:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
Cash and cash equivalents:
<S> <C> <C>
Cash $2,205,582 $1,131,558
Money market funds 12,217,634 13,655,335
Taxable municipal securities 7,000,000 5,000,000
Commercial paper 24,145,937 5,901,867
----------------- -----------------
45,569,153 25,688,760
Short-term investments:
Certificates of deposit 5,498,285 1,500,000
Taxable municipal securities 9,400,000 -
Commercial paper 15,789,374 62,563,070
----------------- -----------------
30,687,659 64,063,070
----------------- -----------------
Cash, cash equivalents and short-term investments $76,256,812 $89,751,830
================= =================
Long-term investments - U.S. agency securities $4,981,799 $4,978,761
================= =================
</TABLE>
4. RELATED PARTY TRANSACTIONS
STOCKHOLDER AND CUSTOMER
A stockholder, who is also a customer, accounted for $204,475 and
$176,175 of the Company's total revenues for the three months ended March 31,
2000 and 1999, respectively. This customer accounted for $202,150 and $0 of
the Company's accounts receivable at March 31, 2000 and December 31, 1999,
respectively.
AFFILIATE AND CUSTOMER
An affiliate, who owns a majority interest in a stockholder, is also
a customer and accounted for $76,340 and $50,002 of the Company's revenues
for the three months ended March 31, 2000 and 1999, respectively. This
customer accounted for $2,085 and $15,495 of the Company's accounts
receivable at March 31, 2000 and December 31, 1999, respectively.
7
<PAGE>
MARKETING AGREEMENTS
During the three months ended March 31, 2000 and 1999, the Company
recognized $1,245,000 and $447,500, respectively, in marketing expense under a
marketing agreement with an Internet company. A beneficial owner of a
significant number of shares of the outstanding stock of the Internet company is
a principal stockholder of the Company.
5. INSWEB JAPAN
In 1998, the Company entered into a Joint Venture Agreement with a
strategic partner and significant stockholder to develop, implement and
market an online insurance marketplace in Japan and the Republic of Korea.
The joint venture is carried out exclusively through a newly formed Japanese
corporation, InsWeb Japan K.K. in which the Company owns a 25% interest. In
conjunction with this agreement, the Company also entered into an agreement
to provide consulting and hosting services to assist InsWeb Japan K.K. in
developing its Internet strategy. For the three months ended March 31, 2000,
$1,202,696 was billed to InsWeb Japan K.K. under this contract and is
included in development and maintenance fees. At March 31, 2000, $319,822 of
accounts receivable was due from InsWeb Japan, K.K.
The Company's interest in InsWeb Japan K.K. was purchased in
exchange for a promissory note due to the Company's strategic partner. The
promissory note is payable in Yen and accrues interest at 5% per annum, which
is payable quarterly on the last day of each calendar quarter. The promissory
note, together with all accrued and unpaid interest, is due and payable on
the earlier of the closing date of an initial public offering of the
securities of InsWeb Japan K.K. or December 15, 2002. Interest expense
related to this note for the three months ended March 31, 2000 was $17,464.
As of March 31, 2000 and December 31, 1999, $1,460,138 and $1,464,558 was
outstanding under the note, respectively
6. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101 Revenue Recognition in Financial Statements. SAB No 101 expresses the views
of the SEC staff in applying accounting principles generally accepted in the
United States to certain revenue recognition issues. In March 2000, the SEC
issued SAB No. 101A, Amendment: Revenue Recognition in Financial Statements. SAB
101A delays the implementation date of SAB 101 for registrants with fiscal years
that begin between December 16, 1999 and March 15, 2000. InsWeb will adopt SAB
101, as required, in the second quarter of 2000 and is evaluating the effect
that such adoption may have on its consolidated results of operations and
financial position. InsWeb is assessing the impact of this SAB on its financial
position, results of operations and cash flows.
In March 2000, the FASB issued Interpretation No. 44 (FIN No. 44),
"Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25." FIN No. 44 will be effective July 1,
2000. This interpretation provides guidance for applying APB Opinion No. 25
"Accounting for Stock Issued to Employees." Management has not determined the
impact, if any, that adoption of FIN No. 44 will have on the Company's financial
position, results of operations and cash flows.
In March 2000, the Emerging Issues Task Force (EITF) of the FASB
reached a consensus on Issue No. 00-2, "Accounting for Web Site Development
Costs" which provides guidance on when to capitalize versus expense costs
incurred to develop a web site. The consensus is effective for web site
development costs in quarters beginning after June 30, 2000. The Company has not
yet determined the impact, if any, this Issue will have on the Company's
financial statements.
7. SUBSEQUENT EVENTS
STATE FARM INSURANCE
On April 14, 2000, State Farm Insurance, which accounted for
approximately 29% of the Company's total revenues for the three months ended
March 31, 2000, informed InsWeb that it would not renew its participation
agreement with the Company. Effective May 1, 2000, State Farm is no longer a
participant in InsWeb's marketplaces for auto, term life, homeowners,
condominium and renters insurance. With State Farm's non-renewal, auto
insurance coverage is no longer available to consumers in Vermont and certain
Canadian provinces, and homeowners and renters insurance is available in
significantly fewer states. Term life offerings were not significantly
affected in any state.
8
<PAGE>
eHEALTHINSURANCE
In April 2000, InsWeb and eHealthInsurance announced the formation
of an online partnership designed to leverage the companies' respective
strengths in marketing, product offerings and customer service. Through this
effort, InsWeb customers shopping for health insurance will access
eHealthInsurance's wide selection of leading insurers, products and
comprehensive service offerings. The exclusive, two-year agreement includes
the marketing of individual health, small-group health and Medicare
supplement insurance offerings from among the insurers participating with
eHealthInsurance. As a result of this new agreement, we are negotiating the
termination of InsWeb's agreements with health insurance carriers.
9
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
InsWeb has included in this filing certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
concerning InsWeb's business, operations and financial condition. The words or
phrases "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions are generally intended to identify
forward-looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties, and InsWeb cautions you that
any forward-looking information provided by or on behalf of InsWeb is not a
guarantee of future performance. Actual results could differ materially from
those anticipated in such forward-looking statements due to a number of factors,
some of which are beyond InsWeb's control, including but not limited to InsWeb's
limited operating history, anticipated losses, the unpredictability of its
future revenues, reliance on key customers, competition, risks associated with
system development and operation risks, management of potential growth and risks
of new business areas, business combinations, and strategic alliances. All
forward-looking statements are based on information available to InsWeb on the
date hereof and InsWeb assumes no obligation to update such statements.
RECENT DEVELOPMENTS
On April 14, 2000, State Farm Insurance, which accounted for
approximately 29% of all InsWeb revenues for the three months ended March 31,
2000 and was the Company's largest customer, informed InsWeb that it would not
renew its participation agreement with the Company. Effective May 1, 2000, State
Farm is no longer a participant in InsWeb's marketplaces for auto, term life,
homeowners, condominium and renters insurance. As a result, InsWeb expects a
material decline in revenues in the coming months. With State Farm's nonrenewal,
auto insurance coverage is no longer available to consumers in Vermont and three
Canadian provinces, and homeowners and renters insurance is available in
significantly fewer states. Term life offerings were not significantly affected
in any state.
As a result of State Farm's decision not to renew its participation, we
have made a number of business decisions addressing our short-term business
plans in order to manage our expenses and our portfolio of cash and short-term
investments, including a reduction of our workforce in April 2000 by
approximately 10% and a reduction in our consumer marketing expenses beginning
in the second quarter of fiscal 2000.
OVERVIEW
InsWeb operates an online insurance marketplace that enables consumers
to shop online for a variety of insurance products, including automobile, term
life, homeowners, renters and individual health insurance, and obtain insurance
company-sponsored quotes for actual coverage. In order to create this
marketplace, InsWeb has established business relationships with more than 40
insurance companies throughout the United States as of May 1, 2000.
InsWeb's principal source of revenues is transaction fees. While quotes
obtained through InsWeb's online insurance marketplace are provided to consumers
free of charge, InsWeb's participating insurance companies pay transaction fees
to InsWeb generally based on qualified leads delivered to them electronically.
Qualified leads are produced in two ways: for insurance companies offering
consumers instant online quotes, a qualified lead is produced when a consumer
requests insurance coverage based on a specific quote; for insurance companies
providing e-mail or other offline quotes, a qualified lead is produced when the
consumer clicks to request the quote itself. In either case, transaction fees
are payable whether or not the consumer actually purchases an insurance policy
from the insurance company, and revenue from transaction fees is recognized at
the time the qualified lead is delivered to the insurance company.
In October 1999, InsWeb began generating revenue as an insurance
agent based on activities it performs related to the sale of certain
automobile insurance policies in California. During the first quarter of
fiscal 2000, InsWeb began expansion of its agency activities to include the
sale of automobile insurance policies in Washington and Arizona. InsWeb's
subsidiary, InsWeb Insurance Services, Inc. has been appointed as an
authorized automobile insurance agent by eight participating insurance
companies in California and by one carrier in both Arizona and Washington.
InsWeb receives a commission based on a percentage of the insurance policy
premium related to each insurance policy sale where InsWeb has acted as
10
<PAGE>
the insurance agent. InsWeb recognizes the revenue from these activities on the
later of the billing date or effective date of the policy sold based on a
percentage of the policy premium.
InsWeb also generates development and maintenance fees from its
participating insurance companies. InsWeb charges a fee to design and develop
customized interfaces between an insurance company's information system and the
InsWeb site. Development fees are typically recognized when the insurance
company's integration with the InsWeb site becomes operational. Additional
development fees are charged as insurance companies add new products, increase
their geographic coverage and convert to instant quoting capability on InsWeb's
online insurance marketplace, as well as for periodic upgrades and changes to
insurance companies' information resident on the InsWeb site. InsWeb charges
maintenance fees for maintaining and servicing the programs of the individual
insurance companies and for maintaining any hardware at InsWeb's facility that
is dedicated to specific insurance companies. These maintenance fees are
typically payable monthly and are recognized as revenue ratably over the term of
the maintenance agreement. Prepaid development and maintenance fees are recorded
as deferred revenue until earned. Development and maintenance fees are expected
to account for a declining percentage of total revenues as transaction fees and
fees related to InsWeb's activities as an agent increase.
Product development expenses consist primarily of payroll and
related expenses for development and technology personnel. To date, InsWeb
has not capitalized any of its software development costs. Because the timing
of the commercial release of its products has substantially coincided with
their technological feasibility, all software development costs have been
expensed as incurred. InsWeb expects that its product development expenses
will continue to increase for the foreseeable future. As discussed in the
notes to the financial statements, management has not yet determined the
impact, if any, EITF issue 00-2 "Accounting for Website Development Costs"
will have on the financial statements.
Sales and marketing expenses consist primarily of payroll and
related expenses for InsWeb's sales and marketing personnel as well as
consumer marketing expenditures for advertising, public relations, promotions
and fees paid to online companies with which InsWeb has contractual
relationships. Through the first quarter of fiscal 2000, InsWeb increased its
sales and marketing expenses in order to establish and maintain relationships
with insurance companies, attract increased consumer traffic to the InsWeb
site, and develop the InsWeb brand. As a result of State Farm's announcement
not to renew its participation agreement with InsWeb and its anticipated
effect on revenues, we intend to reduce our consumer marketing expenses
beginning in the second quarter of fiscal 2000. Accordingly, InsWeb intends
to concentrate its consumer marketing program on maintaining key online
relationships and on selective advertising campaigns designed to maintain
consumer awareness of InsWeb and its online insurance marketplace. InsWeb
also intends to selectively market the InsWeb online marketplace in order to
add new insurance companies and expand and maintain relationships with
participating companies. Although InsWeb expects to reduce its sales and
marketing expenses below amounts reported for the three months ended March
31, 2000, sales and marketing expenses may nevertheless increase compared to
prior year periods.
General and administrative expenses consist primarily of payroll and
related expenses for InsWeb's management, administrative and accounting
personnel, expenses relating to site operations, professional fees and other
general corporate expenses. InsWeb expects that, in support of its continued
business and its operations as a public company, general and administrative
expenses will continue to increase for the foreseeable future.
REVENUES
TRANSACTION FEES. Transaction fees accounted for $7.1 million, or
82.3% of total revenues, for the three months ended March 31, 2000 compared
to $2.9 million, or 86.6% of total revenues, for the comparable period in
1999. This increase was primarily the result of the number of leads generated
by the substantial increase in the number of completed shopping sessions,
partially offset by a decline in revenue generated per shopping session. The
increase in shopping sessions resulted from increased consumer traffic due to
InsWeb's consumer marketing activities and the addition of a substantial
number of online relationships.
During the first quarter of 2000, more than 772,000 shopping
sessions were completed at InsWeb, a 170% increase over the 286,000 shopping
sessions completed in the first quarter of 1999, and a sequential increase of
27% over the more than 610,000 shopping sessions completed in fourth quarter
1999. InsWeb recorded more than 3.9 million unique user sessions during the
first quarter of 2000, an increase of 225% over the approximately 1.2 million
unique user sessions recorded in the prior year quarter, and a sequential
increase of 44% over the 2.7 million unique user sessions in the fourth
quarter of 1999.
11
<PAGE>
DEVELOPMENT AND MAINTENANCE FEES. Development and maintenance fees
accounted for $1.5 million, or 17.6% of total revenues, for the three months
ended March 31, 2000, compared to $443,000, or 13.4% of total revenues, for
the comparable period in 1999. The increase in development and maintenance
fees resulted primarily from revenue associated with a development agreement
with InsWeb Japan K.K. To a lesser degree, the increase was attributable to
an overall increase in the number of InsWeb's participating insurance
companies.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenses increased to $2.8
million for the three months ended March 31, 2000, from $1.5 million for the
comparable period in 1999. This increase was primarily attributable to the
hiring of additional personnel to support the requirements of InsWeb's growing
network of participating insurance companies and online relationships and to
design, test and deploy InsWeb's product offerings.
SALES AND MARKETING. Sales and marketing expenses increased to $14.3
million for the three months ended March 31, 2000, from $3.8 million for the
comparable period in 1999. This increase was due to substantial increases in
consumer marketing expenses, including increased costs and fees associated with
new and existing online relationships, costs related to national radio and
television campaigns, an increase in sales and marketing personnel, and
operating costs associated with InsWeb's customer care center and associated
insurance agency activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased to $4.8 million for the three months ended March 31, 2000, from $2.4
million for the comparable period in 1999. This increase was primarily due to
increased personnel and related costs, increased office and occupancy costs
associated with additional leased office facilities, and increased depreciation
related to capital expenditures.
AMORTIZATION OF STOCK-BASED COMPENSATION. Amortization of stock-based
compensation for the three months ended March 31, 2000 was $0.3 million compared
to $0.2 million for the year ended December 31, 1998. This increase was
attributable to the amortization of additional deferred compensation charges
related to certain stock option grants where the Company has determined that the
deemed fair market value on the date of grant was in excess of the exercise
price of the options.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
during the three ended March 31, 2000 and 1999 was $782,000. This amount was
attributable to the acquisition of Benelytics in December 1998.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net includes income earned on InsWeb's
invested cash and expense related to its outstanding debt obligations. Net
interest income for the three months ended March 31, 2000 was $1.3 million
compared to net interest expense of $468,000 for the comparable period in
1999. The increase in net interest income was primarily a result of the
repayment of the line of credit in fiscal 1999 with the proceeds of its
initial public offering of common stock in July 1999, and increased interest
income on cash and short-term investments in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
InsWeb has financed its operations primarily through private
placements of equity securities, borrowings from an affiliate of one of its
investors and its initial public offering of its common stock in July 1999.
At March 31, 2000, InsWeb's principal source of liquidity was $76.3 million
in cash, cash equivalents and short-term investments.
In each period, the use of cash primarily consisted of InsWeb's
operating loss before noncash items. For the three months ended March 31, 2000,
net cash used in operating activities was $13.4 million compared to $6.0 million
in the comparable period in 1999. For the three months ended March, 2000,
noncash items included amortization of intangibles of $0.8 million, depreciation
of fixed assets of $0.7 million and amortization of deferred stock compensation
of $0.3 million. Increases in prepaid assets associated with the prepayment of
online partnership agreements, partially offset by increases in accounts payable
and accrued expenses, also contributed to the cash used in operations for the
three months ended March 31, 2000.
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For the three months ended March 31, 2000, net cash provided from
investing activities was $31.1million, which primarily consisted of the purchase
of short-term investments offset by purchases of equipment and furniture. At
March 31, 2000, InsWeb had no material commitments for capital expenditures but
expects such expenditures to total approximately $6.3 million in 2000, primarily
consisting of equipment, software, furniture and leasehold improvements.
In October 1999, InsWeb signed a 12-year lease agreement through
2011 for additional office space. To secure this lease InsWeb provided a $5.0
million letter of credit, which increases to $9.5 million in May 2000. This
letter of credit is collateralized by a pledge of its investment portfolio,
which is to be not less than 110% of the letter of credit's face value. In
April, 2000, InsWeb decided to postpone its move to this new facility based
on its foreseeable occupancy needs and is attempting to sublease the facility
for the next 36 to 42 months. Regardless of whether InsWeb is able to
sublease some or all of this facility, InsWeb expects to spend approximately
$6.6 million in leasehold improvements, fixtures and equipment in fiscal year
2000 related to this new facility. In conjunction with all other lease
agreements, InsWeb has total minimum lease obligations of $112.0 million over
the terms of the leases.
In addition, under various marketing agreements with its online
partners, InsWeb is obligated to make minimum payments totaling $16.9 million
through April 2001.
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FACTORS THAT MAY AFFECT OUR FUTURE PERFORMANCE
OUR FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED BELOW.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE DID NOT BEGIN TO GENERATE
SIGNIFICANT REVENUES FROM OUR CORE BUSINESS UNTIL 1998
We were incorporated in February 1995, but we did not begin to generate
significant transaction fees from our online marketplace until 1998.
Our limited operating history makes an evaluation of our future
prospects very difficult. An investor in our common stock must consider
the uncertainties frequently encountered by early stage companies in
new and rapidly evolving markets. These uncertainties include:
- an evolving and unpredictable business model, which makes
prediction of future results uncertain and an investment in
our common stock highly speculative;
- the lack of a well-developed brand identity, which may limit
our ability to draw consumers to our website;
- the potential development of comparable services by
competitors, which may reduce our market share;
- the uncertainty of the extent to which the consumer market
will adopt the Internet as a medium for comparison shopping
for and purchase of insurance products, which may limit our
ability to generate revenue from consumers that visit our
online marketplace;
- our potential inability to successfully manage our anticipated
growth, which could lead to management distractions and
increased operating expenses;
- our ability to retain key employees; and
- our reliance on key customers and ability to retain customers.
To address these uncertainties, we must, among other things:
- refine our business model;
- work to expand the efficiencies and geographic coverage of our
agency activities;
- enhance the brand identity of our online insurance
marketplace;
- maintain and increase our strategic alliances with other
online businesses to increase traffic to our website;
- maintain, increase and geographically diversify our base of
participating insurance companies;
- continue to ensure that our participating insurance companies
offer competitive insurance products;
- satisfy legal and regulatory requirements applicable to the
insurance industry; and
- continue to address consumer privacy concerns.
Our business strategy may not be successful and we may not be able to
successfully address these uncertainties. Moreover, our ability to take
the foregoing steps may be hampered by our limited financial resources
should we fail to rapidly increase revenues or should increased
revenues be more than offset by increased operating expenses.
WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES, AND WE MAY NOT ACHIEVE OR
MAINTAIN PROFITABILITY
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Given planned investment levels, our ability to achieve profitability
will depend upon our ability to generate and sustain substantially
increased revenues. As a result, we believe that we will incur
substantial operating losses for the foreseeable future. We incurred
operating losses of $21.9 million for the year ended December 31, 1998,
$38.4 million for the year ended December 31, 1999, and $14.4 million
for the three months ended March 31, 2000. Additionally, as of March
31, 2000, our accumulated deficit was $87.5 million. Although we have
experienced significant revenue growth in recent periods, this growth
rate is not sustainable and will decrease in the future. Our operating
results for future periods are subject to numerous uncertainties, and
we may not achieve sufficient revenues to become profitable. Even if we
achieve profitability, we may not sustain or increase profitability on
a quarterly or annual basis in the future. If we are unable to achieve
profitability, we will need to seek additional financing to continue
our business operations. Such financing could be on terms that are
dilutive to our existing stockholders or could involve the issuance of
securities that have rights and preferences that are senior to those
associated with our common stock. Moreover, if such financing were not
available or were available only upon terms that were unacceptable to
us, we could be required to significantly curtail our operations.
OUR FUTURE REVENUES ARE UNPREDICTABLE, OUR OPERATING RESULTS ARE LIKELY TO
FLUCTUATE FROM QUARTER TO QUARTER, AND IF WE FAIL TO MEET THE EXPECTATIONS OF
SECURITIES ANALYSTS OR INVESTORS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY
Due to our limited operating history, the emerging nature of the market
in which we compete and the high proportion of our revenues that are
derived from consumer traffic on our website, our future revenues are
inherently difficult to forecast. We believe that period-to-period
comparisons of our operating results may not be meaningful, and you
should not rely upon them as an indication of our future performance.
Moreover, our expense levels are based largely on our investment plans
and estimates of future revenues. We may be unable to adjust our
spending to compensate for an unexpected shortfall in revenues.
Accordingly, any significant shortfall in revenues relative to our
planned expenditures would harm our results of operations and could
cause our stock price to fall sharply, particularly following quarters
in which our operating results fail to meet the expectations of
securities analysts or investors.
Factors that may cause fluctuations in our operating results include
the following, many of which are outside our control:
- We may experience consumer dissatisfaction with our online
marketplace as we add or change features, or as the insurance
coverage offered by participating insurance companies varies;
- Consumer traffic on our online marketplace may decline as a
result of the announcement or introduction of a competing
online insurance marketplace or other new websites, products
or services offered by our competitors;
- Such consumer traffic may also fluctuate as a result of
changes in consumer acceptance of Internet commerce,
particularly in connection with shopping for insurance;
- Our revenues may be harmed if we lose one or more significant
insurance company relationships or if any of our participating
insurance companies merge with one another;
- Use of the Internet by consumers may fluctuate due to seasonal
factors or other uncontrollable factors affecting consumer
behavior and may be affected by slow Internet performance due
to technical problems or traffic bottlenecks on the network;
- Our ability to convert site visits into transaction fees
and/or revenue from insurance agency activities may fluctuate
due to changes in our user interface or other features on our
site or changes in the filtering criteria used by our
participating insurance companies to determine which consumers
will be offered quotes; and
- Our ability to generate transaction fees and/or revenue from
insurance agency activities may also be harmed due to
technical difficulties on our website that hamper a consumer's
ability to start or complete a shopping session.
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SEASONALITY AFFECTING INSURANCE SHOPPING AND INTERNET USAGE MAY CAUSE
FLUCTUATIONS IN OUR OPERATING RESULTS
We have experienced seasonality in our business associated with general
slowness in the insurance industry during the year-end holiday period.
We expect to continue to experience seasonality as our business
matures. Because of this seasonality, investors may not be able to
predict our annual operating results based on a quarter-to-quarter
comparison of our operating results. We believe seasonality will have
an ongoing impact on our business.
BECAUSE SUBSTANTIALLY ALL OF OUR REVENUE IS ATTRIBUTABLE TO AUTOMOBILE INSURANCE
SHOPPING ON OUR ONLINE MARKETPLACE, WE ARE ESPECIALLY VULNERABLE TO RISKS
RELATED TO THE ONLINE MARKET FOR AUTOMOBILE INSURANCE OR THE AUTOMOBILE
INSURANCE INDUSTRY GENERALLY
Automobile insurance accounted for approximately 78% of our total
revenues in the year ended December 31, 1999 and approximately 70%
in the three months ended March 31, 2000. We anticipate that
automobile insurance will continue to account for a substantial
portion of our revenues for the foreseeable future. As a result, if
we fail to attract a broad base of consumers to shop for automobile
insurance on our site, or if changes in the automobile insurance
industry make electronic commerce a less attractive means to shop
for this type of insurance, our ability to generate revenue will be
reduced and our business will be harmed. In addition, our business
is likely to be affected by any events or changes that affect the
automobile insurance industry as a whole.
IF WE ARE UNABLE TO PROMOTE OUR BRAND AND EXPAND OUR BRAND RECOGNITION, OUR
ABILITY TO DRAW CONSUMERS TO OUR WEBSITE WILL BE LIMITED
A growing number of websites offer services that are similar to and
competitive with the services offered on our online insurance
marketplace. Therefore, establishing and maintaining our brand is
critical to attracting additional consumers to our website,
strengthening our relationships with participating insurance companies
and attracting new insurance companies. If our brand does not achieve
positive recognition in the market, our ability to draw consumers to
our website will be limited. In order to attract and retain consumers
and insurance companies and to promote and maintain our brand, through
the first quarter of fiscal 2000, we increased our financial commitment
to creating and maintaining prominent brand awareness. As a result of
State Farm's announcement not to renew its participation agreement with
InsWeb, we intend to reduce our consumer marketing expenses beginning
in the second quarter of fiscal 2000. Our continued consumer marketing
program will include the maintenance of certain of our network of
online relationships, and selective online and print, radio and
television advertising campaigns designed to maintain consumer
awareness of InsWeb and our online insurance marketplace. If our
marketing efforts do not generate a corresponding increase in revenues
or we otherwise fail to successfully promote our brand, or if these
efforts require excessive expenditures, our business will be harmed.
Moreover, if visitors to our website do not perceive our existing
services or the products and services of our participating insurance
companies to be of high quality, or if we alter or modify our brand
image, introduce new services or enter into new business ventures that
are not favorably received, the value of our brand could be harmed.
OUR PLANS TO OFFER ADDITIONAL SERVICES COULD RESULT IN SIGNIFICANT EXPENDITURES,
AND WE MAY NOT GENERATE SUFFICIENT REVENUE TO OFFSET THESE EXPENDITURES
We intend to offer additional services including, among other things:
- performing selected activities on behalf of insurance
companies as an authorized agent;
- adding new insurance companies and helping our existing
insurance companies to expand the number of states in which
they are offering coverage in our online marketplace;
- increasing the level of technology integration between our
platform and the systems of our participating insurance
companies;
- attempting to leverage our technology; and
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- continuing our market presence through relationships with
Internet portals, financial institutions, websites oriented to
activities that involve the purchase of insurance, such as
automobile shopping sites, and other online companies.
We may not be able to offer these additional services in a
cost-effective or timely manner, or these efforts may not increase the
overall market acceptance of our products and services. Expansion of
our operations in this manner could also require significant additional
expenditures and strain our management, financial and operational
resources. The lack of market acceptance of these efforts, regulatory
issues, or our inability to generate enough revenue from these expanded
services or products to offset their cost could harm our business.
COMPETITION IN THE MARKET FOR ONLINE DISTRIBUTION OF INSURANCE IS INTENSE, AND
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH CURRENT COMPETITORS OR NEW
COMPETITORS THAT ENTER THE MARKET, THE FEES PAID TO US BY PARTICIPATING
INSURANCE COMPANIES MAY FALL, THE FEES CHARGED BY ONLINE COMPANIES WITH WHICH WE
HAVE STRATEGIC RELATIONSHIPS MAY RISE, AND OUR MARKET SHARE MAY SUFFER
The online insurance distribution market is a new industry and, like
the broader electronic commerce market, is both rapidly evolving and
highly competitive. Increased competition, particularly by companies
offering online insurance distribution, could reduce the fees we are
able to charge our participating insurance companies or increase the
fees we are required to pay to online companies with which we have
strategic relationships, resulting in reduced margins or loss of market
share, any of which could harm our business.
Some of our current competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we do. In addition, we
believe we will face increasing competition as the online financial
services industry develops and evolves. Our current and future
competitors may be able to:
- undertake more extensive marketing campaigns for their brands
and services;
- devote more resources to website and systems development;
- adopt more aggressive pricing policies; and
- make more attractive offers to potential employees, online
companies and third-party service providers.
Accordingly, we may not be able to maintain or grow consumer traffic to
our website and our base of participating insurance companies, our
competitors may grow faster than we do, or companies with whom we have
strategic relationships may discontinue their relationships with us,
any of which would harm our business.
IF OUR PARTICIPATING INSURANCE COMPANIES DO NOT CONTINUE TO PROVIDE HIGH QUALITY
PRODUCTS AND SERVICE TO CONSUMERS, OUR BRAND WILL BE HARMED AND OUR ABILITY TO
ATTRACT CONSUMERS TO OUR WEBSITE WILL BE LIMITED
Our ability to provide a high quality shopping experience to consumers
depends in part on the quality of the products and services consumers
receive from our participating insurance companies, including timely
response to requests for quotes or coverage. If our participating
insurance companies do not provide consumers with high-quality products
and services, the value of our brand may be harmed and the number of
consumers using our services may decline. We have from time to time
received complaints from consumers who have not received a timely
response to a request for an insurance quote. Although we have taken
steps and proposed methods to encourage our participating insurance
companies to be responsive to consumer requests, these steps and/or
proposed methods may not be successful. In addition, if any of our
major participating insurance companies were to discontinue their
business, be downgraded by insurance company rating services or be
financially harmed by trends in the insurance industry, our brand may
be harmed.
BECAUSE SEVERAL OF THE INSURANCE COMPANIES WITH WHICH WE HAVE RELATIONSHIPS ARE
MAJOR STOCKHOLDERS OR ARE ASSOCIATED WITH MEMBERS OF OUR BOARD OF DIRECTORS, WE
MAY FIND IT DIFFICULT TO TERMINATE OR SUSPEND THE PARTICIPATION OF ONE OF THESE
INSURANCE COMPANIES BASED UPON THE QUALITY OF ITS SERVICE. THIS COULD, IN TURN,
CAUSE THE QUALITY OF OUR SERVICES TO DECREASE AND HARM OUR BRAND IMAGE WITH
CONSUMERS
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Several insurance companies participating in our online marketplace own
significant portions of our outstanding stock, are affiliated with
members of our board of directors or have close business relationships
with members of our board. One insurance company, Nationwide, holds
approximately 9% of our outstanding common stock, and Richard D.
Headley, Senior Vice President and Chief Information Officer of
Nationwide Insurance Enterprise, an affiliate of Nationwide, is a
member of our board. Another insurance company, CNA, holds
approximately 6% of our outstanding common stock. Most of our other
outside directors are affiliated with companies, such as insurance
brokerage firms, that may have substantial business dealings with many
of the insurance companies with which we have relationships. As a
result of such affiliations or relationships, we may find it difficult
to terminate or suspend the participation of one of these insurance
companies based upon the quality of its service. This could, in turn,
cause the quality of our services to decrease and harm our brand image
with consumers.
BECAUSE A LIMITED NUMBER OF INSURANCE COMPANIES ACCOUNT FOR A MAJORITY OF OUR
REVENUES, THE LOSS OF A SINGLE INSURANCE COMPANY RELATIONSHIP COULD RESULT IN A
SUBSTANTIAL DROP IN OUR REVENUES
Revenues from State Farm, AIG and American Family accounted for
approximately 31%, 11% and 11%, respectively, of our revenues for
the year ended December 31, 1999, and revenues from State Farm, GE
Financial Assurance and AIG accounted for approximately 29%, 11% and
10%, respectively, of our revenues for the three months ended March
31, 2000. In April 2000, State Farm Insurance, which accounted for
approximately 29% of all InsWeb revenues for the three months ended
March 31, 2000, informed InsWeb that it would not renew its
participation agreement with InsWeb. Effective May 1, State Farm is
no longer participating in InsWeb's marketplaces for auto, term
life, homeowners, condominium and renters insurance. With State
Farm's nonrenewal, auto insurance coverage is no longer available to
consumers in Vermont and three provinces in Canada, and homeowners
and renters insurance is available in significantly fewer states.
Term life offerings were not significantly affected in any state. As
a result of State Farm's withdrawal, we expect a material decline in
revenues in the near term until additional agreements with new
carriers can be negotiated and these carriers are integrated into
InsWeb's marketplaces. Should one or more of our other key insurance
company partners cease to participate in our online marketplace, or
should it change its underwriting criteria or geographic coverage in
a way that reduces the proportion of consumers that are offered
quotes from that insurance company, our operating results could be
materially harmed. Because of the broad market presence of some of
our participating insurance companies, we expect to continue to
generate a substantial portion of our revenues from a limited number
of insurance companies for the foreseeable future. In addition,
although new carriers may be signed up to participate in our online
marketplace, these new carriers may not replace revenues lost as a
result of State Farm's nonrenewal. Moreover, there can be no
assurance we will be able to add any new carriers.
IN MOST JURISDICTIONS, WE RELY ON THE PARTICIPATION OF A LIMITED NUMBER OF
INSURANCE COMPANIES ON OUR ONLINE MARKETPLACE, AND THE LOSS OF ANY OF THESE
INSURANCE COMPANIES COULD MAKE OUR ONLINE MARKETPLACE LESS ATTRACTIVE TO
CONSUMERS
Consumer demand for the services offered on our website in any
jurisdiction is substantially dependent upon the participation of
competing brand-name insurance companies offering competitive quotes
for a given insurance product in that jurisdiction. Accordingly, the
success of our business depends on our ability to attract and retain
well-known insurance companies to participate in our marketplace.
Although we currently have relationships with more than 40 insurance
companies overall, in individual jurisdictions where competing
quotes for comparable products are available on our online
marketplace, the number of companies offering quotes ranges from two
to 15. If we are unable to increase the number of insurance
companies that participate in our online marketplace, particularly
in the jurisdictions where we currently offer comparable insurance
products from only two or three insurance companies, we may not be
able to attract additional consumers or may lose our existing
consumers to other online competitors offering a wider variety of
insurance companies. As of March 31, 2000, there were 26
jurisdictions in which three or fewer insurance companies were
offering automobile insurance quotes on our online marketplace. Of
those, State Farm was a participant in 25 jurisdictions and AIG is a
participant in 15 jurisdictions. As a result of State Farm's
nonrenewal of their contract effective on May 1, 2000, there
currently are 10 jurisdictions in which we have only one insurance
company offering automobile quotes on our online marketplace and two
states in which there is no participating carrier. If any other
insurance company participating in a number of jurisdictions
discontinued or significantly reduced its participation in our
online marketplace, the attractiveness of the marketplace to
consumers in these jurisdictions would be greatly diminished.
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In addition, we believe that there is a general trend toward
consolidation in the insurance industry. For example, in October 1999
Allstate Corp. announced an agreement to acquire the personal lines
business of CNA Financial Corp., one of our participating insurance
companies. Also, in March 2000, CNA announced its intention to sell its
life insurance and reinsurance units. In the jurisdictions where we
currently offer comparable insurance products from three or fewer
insurance companies, the loss of one or more of these companies,
whether due to industry consolidation or otherwise, could materially
reduce the selection of insurance companies available to consumers on
our website, thereby substantially reducing the attraction of our
online marketplace to consumers.
WE MAY HAVE DIFFICULTY INTEGRATING NEW INSURANCE COMPANIES INTO OUR ONLINE
MARKETPLACE OR AGENCY OPERATIONS, WHICH COULD HARM OUR ABILITY TO OFFER IMPROVED
COMPARISON SHOPPING OPPORTUNITIES AND THUS LIMIT THE ATTRACTIVENESS OF OUR
SERVICE TO CONSUMERS
Integration of an insurance company into our online marketplace
requires a significant commitment of time and resources on our part and
on the part of the insurance company, and is a technologically
difficult process. This integration process typically takes from three
to six months to complete and typically requires us to expend between
160 and 2,000 man-hours. Though integration into our agency operations
may require fewer resources to implement than integration of an
insurance company into our online marketplace, potential participating
insurance companies may not be willing to invest the time and resources
necessary to achieve this integration, or we may not be able to
overcome the technological difficulties associated with, or devote the
time and resources necessary to, successfully integrate the insurance
company into our online marketplace or our agency operations.
WE DO NOT HAVE EXCLUSIVE RELATIONSHIPS OR LONG-TERM CONTRACTS WITH INSURANCE
COMPANIES, WHICH MAY LIMIT OUR ABILITY TO RETAIN THESE INSURANCE COMPANIES AS
PARTICIPANTS IN OUR MARKETPLACE AND MAINTAIN THE ATTRACTIVENESS OF OUR SERVICES
TO CONSUMERS
We do not have an exclusive relationship with any of the insurance
companies whose insurance products are offered on our online
marketplace, and thus, consumers may obtain quotes and coverage from
these insurance companies without using our website. Our
participating insurance companies offer their products directly to
consumers through insurance agents, mass marketing campaigns or
through other traditional methods of insurance distribution. These
insurance companies can 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 insurance companies are cancelable at the
option of either party upon 90 days' notice or less. As discussed
above, in April 2000, State Farm Insurance, which accounted for
approximately 29% of InsWeb's total revenues for the three months
ended March 31, 2000, informed InsWeb that it would not renew its
participation agreement with the Company.
TRAFFIC ON OUR WEBSITE IS HEAVILY DEPENDENT ON OUR ONLINE RELATIONSHIPS. THESE
RELATIONSHIPS MAY NOT GENERATE SUFFICIENT REVENUES TO JUSTIFY THE FEES WE PAY TO
ONLINE COMPANIES. FURTHER, OUR CONSUMER TRAFFIC MAY DECLINE IN THE EVENT AN
ONLINE RELATIONSHIP IS UNSUCCESSFUL
We rely on relationships with a variety of Internet portals, financial
institutions, and other online companies to attract consumers to our
website. In a typical arrangement, the online company includes a "link"
on its website on which a user can click to jump to our website or to a
site that we operate under the online company's name; as part of the
arrangement, we typically pay the online company a portion of the
resulting transaction fees and in some cases a fixed fee. These
relationships may not continue to generate a substantial amount of new
traffic on our website, or the revenues generated by these
relationships may be insufficient to justify our payment obligations.
Furthermore, the value of these relationships is based on the continued
positive market presence, reputation and growth of these online
companies' websites and services. Any decline in the market presence,
business or reputation of these online companies' websites and services
will reduce the value of these relationships to us and could harm our
business.
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We have entered into an arrangement with Yahoo! Inc. under which our
site is the exclusive insurance site included in the Yahoo! Insurance
Information Center. For the year ended December 31, 1999 and three
months ended March 31, 2000, we received approximately 10.1% and 8.2%
of our website traffic from our online relationship with Yahoo!,
respectively, and approximately 33.7% and 33.1% of our traffic from all
of our online relationships combined, respectively. In addition, in
December 1999, we entered into a marketing agreement with Microsoft and
in February 2000, we entered into a marketing agreement with certain
properties owned by America Online. Our ability to increase our
revenues will depend, in part, on increased traffic to our website that
we expect to generate through these online relationships.
Our relationships with online companies typically have a 12-month term
and do not provide us with automatic renewal rights upon termination.
For example, our agreement with Yahoo! expires in the third quarter of
fiscal 2000. In addition, these agreements are typically terminable by
either party on 30 to 90 days' notice. There can be no assurance we
will be able to negotiate or renew marketing agreements with online
companies on terms that are acceptable to us. The termination,
nonrenewal or renewal on unfavorable terms of a relationship from which
we generate significant traffic to our website, such as our
relationship with Yahoo!, would harm our business. Additionally, an
online company's failure to maintain efficient and uninterrupted
operation of its computer and communications hardware systems would
likely reduce the amount of traffic we receive at our site, harming our
business.
LAWS AND REGULATIONS THAT GOVERN THE INSURANCE INDUSTRY COULD EXPOSE US, OR OUR
PARTICIPATING INSURANCE COMPANIES, OUR OFFICERS, OR AGENTS WITH WHOM WE
CONTRACT, TO LEGAL PENALTIES IF WE FAIL TO COMPLY, AND COULD REQUIRE CHANGES TO
OUR BUSINESS
We perform functions for licensed insurance companies and are,
therefore, required to comply with a complex set of rules and
regulations that often vary from state to state. If we fail to comply
with these rules and regulations, we, an insurance company doing
business with us, our officers, or agents with whom we contract, could
be subject to various sanctions, including censure, fines, a
cease-and-desist order or other penalties. This risk, as well as
changes in the regulatory climate or the enforcement or interpretation
of existing law, could expose us to additional costs, including
indemnification of participating insurance companies for their costs,
and could require changes to our business or otherwise harm our
business. Furthermore, because the application of online commerce to
the consumer insurance market is relatively new, the impact of current
or future regulations on InsWeb's business is difficult to anticipate.
THE RECENTLY ENACTED GRAMM-LEACH-BLILEY ACT MAY ALTER THE TRADITIONAL STRUCTURE
OF INSURANCE REGULATION AND IMPOSE NEW OR ADDITIONAL LEGAL REQUIREMENTS ON OUR
BUSINESS
The November 1999 passage of the Gramm-Leach-Bliley Act (S.900)
increased the potential for significant changes in the structure and
regulation of the insurance industry. Traditionally, regulation of
insurance has been almost exclusively the province of the states,
including regulation of sales practices, underwriting requirements and
claims payments. Moreover, with limited exceptions, securities firms
and banking institutions historically were prohibited from engaging in
the business of insurance, and were regulated by federal agencies. The
Gramm-Leach-Bliley Act eliminated these legislative barriers between
segments of the financial services industry. Although insurance will
still be regulated primarily by the states, insurance entities that
become part of a financial services institution may be indirectly
affected by the federal regulatory requirements pertaining to banks or
securities firms.
OUR INTENDED EXPANSION OF OUR BUSINESS, INCLUDING, IN PARTICULAR, OUR AGENCY
ACTIVITIES, WILL SUBJECT US TO ADDITIONAL REGULATIONS WHICH MAY DELAY OR PREVENT
OUR EXPANSION AND HARM OUR BUSINESS
Over time, we intend to expand our operations to include new products
and services and to offer existing and new products in new
jurisdictions, which may require us to comply with additional laws and
regulations. If we fail to adequately comply with these laws and
regulations, our ability to offer some of our products or services in a
particular jurisdiction could be delayed or prevented and our business
could be harmed. Compliance with these laws and regulations and those
of other jurisdictions into which we expand may require us to obtain
appropriate business licenses, make necessary filings and obtain
necessary bonds, appoint foreign agents and make periodic business
reports.
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IF WE ARE UNABLE TO SAFEGUARD THE SECURITY AND PRIVACY OF CONSUMERS' AND
PARTICIPATING INSURANCE COMPANIES' CONFIDENTIAL DATA, CONSUMERS AND INSURANCE
COMPANIES MAY NOT USE OUR SERVICES AND OUR BUSINESS MAY BE HARMED
A significant barrier to electronic commerce and communications is the
secure transmission of personally identifiable information of Internet
users as well as other confidential information over public networks.
If any compromise or breach of security were to occur, it could harm
our reputation and expose us to possible liability. A party who is able
to circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. We may be
required to make significant expenditures to protect against security
breaches or to alleviate problems caused by any breaches. To date, we
have experienced no breaches in our network security. We rely on
encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure
transmission of confidential information, such as names, addresses,
Social Security and credit card numbers, user names and passwords and
insurance company rate information. Advances in computer capabilities,
new discoveries in the field of cryptography, or other events or
developments could result in a compromise or breach of the algorithms
we use to protect consumers' and insurance companies' confidential
information.
UNCERTAINTY IN THE MARKETPLACE REGARDING THE USE OF INTERNET USERS' PERSONAL
INFORMATION, OR PROPOSED LEGISLATION LIMITING SUCH USE, COULD REDUCE DEMAND FOR
OUR SERVICES AND RESULT IN INCREASED EXPENSES
Concern among consumers and legislators regarding the use of personal
information gathered from Internet users could create uncertainty in
the marketplace. This could reduce demand for our services, increase
the cost of doing business as a result of litigation costs or increased
service delivery costs, or otherwise harm our business. Legislation has
been proposed that would limit the uses of personally identifiable
information of Internet users gathered online or require online
services to establish privacy policies. Many state insurance codes
limit the collection and use of personal information by insurance
companies, agents, or insurance service organizations.
SYSTEM FAILURES COULD REDUCE OR LIMIT TRAFFIC ON OUR WEBSITE AND HARM OUR
ABILITY TO GENERATE REVENUE
Since launching our online marketplace, we have experienced occasional
minor system failures or outages which have resulted in the online
marketplace being out of service for a period ranging from several
minutes to three hours while our technicians brought backup systems
online. We may experience further system failures or outages in the
future that could disrupt the operation of our website and could harm
our business. Our revenues depend in large part on the volume of
traffic on our website and, more particularly, on the number of
insurance quotes generated by our website in response to consumer
inquiries. Accordingly, the performance, reliability and availability
of our website, quote-generating systems and network infrastructure are
critical to our reputation and our ability to attract a high volume of
traffic to our website and to attract and retain participating
insurance companies. Moreover, we believe that consumers who have a
negative experience with an electronic commerce website may be
reluctant to return to that site. Thus, a significant failure or outage
affecting our systems could result in severe long-term damage to our
business.
IF WE DO NOT SUCCESSFULLY ENHANCE OR EXPAND OUR TECHNOLOGY INFRASTRUCTURE TO
ACCOMMODATE INCREASES IN THE VOLUME OF TRAFFIC ON OUR WEBSITE, OUR WEBSITE MAY
NOT PERFORM AT LEVELS THAT ARE SATISFACTORY TO CONSUMERS
We are continually enhancing and expanding our technology, quote
generating systems, network infrastructure and other technologies to
accommodate the volume of traffic on our website. We may be
unsuccessful in these efforts or we may be unable to accurately project
the rate or timing of increases in the volume of traffic on our
website. In addition, we cannot predict whether additional network
capacity will be available from third party suppliers as we need it.
Also, our network or our suppliers' networks might be unable to timely
achieve or maintain a sufficiently high capacity of data transmission
to timely process orders or effectively download data, especially if
our website traffic increases. Our failure to achieve or maintain high
capacity data transmission could significantly reduce consumer demand
for our services.
OUR FACILITIES AND SYSTEMS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER
UNEXPECTED LOSSES, AND WE MAY NOT HAVE ADEQUATE INSURANCE TO COVER SUCH LOSSES
Our computer hardware operations are located in leased facilities in
Redwood City. A full backup system is located in Irvine, California.
Each of these areas is susceptible to earthquakes. If both of these
locations
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<PAGE>
experienced a system failure, the performance of our website would be
harmed. These systems are also vulnerable to damage from fire, floods,
power loss, telecommunications failures, break-ins and similar events.
If we seek to replicate our systems at other locations, we will face a
number of technical challenges, particularly with respect to database
replications, which we may not be able to address successfully.
Although we carry property and business interruption insurance, our
coverage may not be adequate to compensate us for all losses that may
occur. Our servers may also be vulnerable to computer viruses, physical
or electronic break-ins and similar disruptions.
WE MAY EXPERIENCE TECHNOLOGICAL PROBLEMS OR SERVICE INTERRUPTIONS WITH
INDIVIDUAL INSURANCE COMPANIES, WHICH COULD HARM THE QUALITY OF SERVICE ON OUR
WEBSITE
Several of our participating insurance companies have chosen a
technical solution that requires that our Web servers communicate with
these insurance companies' computer systems in order to perform the
filtering and risk analysis and rating functions required to generate
quotes. Thus, the availability of quotes from a given insurance company
may depend in large part upon the reliability of that insurance
company's own computer systems, over which we have no control. A
malfunction in an insurance company's computer system or in the
Internet connection between our Web servers and the insurance company's
system, or an excess of data traffic on that system, could result in a
delay in the delivery of e-mail quotes or could cause an insurance
company that provides instant quotes to go offline until the problem
can be remedied. Further, a computer malfunction could cause an
insurance company to quote erroneous rates, in which case the insurance
company would be required to take itself offline until the malfunction
can be corrected. Any technological problems with or interruption of
communications with an insurance company's computer systems could
materially reduce the number of competing insurance companies available
to provide quotes, and therefore the level of service perceived by
consumers, on our online marketplace.
OUR RECENT GROWTH AND SUBSEQUENT REDUCTION IN FORCE HAS PLACED A SIGNIFICANT
STRAIN ON OUR MANAGEMENT, SYSTEMS AND RESOURCES, AND WE MAY EXPERIENCE
DIFFICULTIES IN MANAGING OUR OPERATIONS IN THE FUTURE
Through the quarter ended March 31, 2000, we experienced growth and
expansion which placed a strain on our administrative, operational and
financial resources and increased demands on our systems and controls.
In April, 2000, as a result of State Farm's decision not to renew its
participation on InsWeb's marketplace, we reduced our workforce by
approximately 10%. If our management is unable to manage our resources
effectively, our business will be harmed. This prior growth and
subsequent reduction in force has resulted in a continuing increase in
the level of responsibility for our management personnel. We anticipate
that our continued operations will require us to retain our current
personnel and to recruit, hire, train and retain new managerial,
technical, sales and marketing personnel based on the attrition of our
current employee base. Our ability to manage our operations
successfully will also require us to improve our operational,
management and financial systems and controls on a timely basis.
WE RELY ON THE SERVICES OF OUR EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL, WHOSE
KNOWLEDGE OF OUR BUSINESS AND THE INSURANCE INDUSTRY AND TECHNICAL EXPERTISE
WOULD BE EXTREMELY DIFFICULT TO REPLACE
Our future success is substantially dependent on the continued services
and continuing contributions of our senior management and other key
personnel, particularly Hussein A. Enan, our Chairman, President and
Chief Executive Officer; James Corroon, Vice Chairman of the Board; and
Mark P. Guthrie, Executive Vice President, Chief Operating Officer and
Chief Financial Officer (acting). The loss of the services of any of
our executive officers or other key employees could harm our business.
For example, in March 2000, Stephen Robertson, our Chief Financial
Officer, resigned to pursue other professional interests. This
resignation has put additional pressure on our executive management
team to fulfill his functional responsibilities. As of the date of
this report, we have not recruited a new Chief Financial Officer.
We have no long-term employment agreements with any of our key
personnel other than Mr. Enan, whose employment agreement expires in
July 2002. We maintain a $2 million life insurance policy on Mr.
Enan that names us as the beneficiary, but maintain no similar
insurance on any of our other key employees. Additionally, we have
granted additional cash and stock option incentives in order to
retain certain of our executive officers and certain other key
personnel. Payment of these incentives is subject to these
individuals completing service terms from six months to one year
from April 2000. Mr. Enan and Mr. Corroon opted not to participate
in this program. As the value of these incentives is highly
dependent on an increase in the market price of our common stock,
there can be no assurance we
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<PAGE>
will be able to retain such key employees through or after their
retention period nor retain or recruit other officers and key employees
in the future.
BECAUSE OF INTENSE COMPETITION FOR TECHNICAL PERSONNEL, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN NECESSARY PERSONNEL, WHICH COULD SLOW THE PROCESS OF ADDING
NEW INSURANCE COMPANIES TO OUR WEBSITE OR OTHERWISE HARM OUR BUSINESS
Our future success depends on our continuing ability to attract, retain
and motivate highly skilled employees, particularly with respect to
technology development and implementation, including integration of
insurance companies into our online marketplace. If we are not able to
attract and retain new personnel, particularly to expand our technology
development and implementation team, our business will be harmed. The
implementation of new insurance companies on our site is a
technologically complex and labor-intensive process. Accordingly, any
difficulty we face in attracting and retaining talented development and
implementation personnel could slow the process of adding new insurance
companies to our online marketplace and therefore limit our ability to
increase the attractiveness of our services to consumers. Competition
for personnel in our industry is intense and we have had a high
turnover rate of employees over the last two quarters. We may be unable
to retain our key employees or attract, assimilate or retain other
highly qualified employees in the future. We have from time to time
experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining employees with appropriate
qualifications.
OUR SUCCESS DEPENDS ON CONTINUED GROWTH OF ELECTRONIC COMMERCE, WHICH MAY NOT
ACHIEVE BROAD ACCEPTANCE BY CONSUMERS
Our future revenues and profits are substantially dependent upon the
widespread acceptance and use of the Internet by consumers as an
effective medium for commerce. Rapid growth in the use of the Internet
is a recent phenomenon, and it may not continue, or the Internet may
not be adopted as a medium of commerce by a broad base of consumers. If
a broad base of consumers do not adopt the Internet as a medium of
commerce, our business may be materially adversely affected.
OUR SUCCESS DEPENDS ON THE WILLINGNESS OF CONSUMERS TO SHOP FOR AND PURCHASE
INSURANCE ON THE INTERNET INSTEAD OF BY MORE TRADITIONAL MEANS; CONSUMERS MAY
NOT BE WILLING TO DO THIS
Shopping for and purchasing insurance on the Internet is a relatively
untested concept, and if it does not gain widespread acceptance, our
business may fail. Demand and market acceptance for recently introduced
services and products on the Internet are subject to a high level of
uncertainty, and there are few proven services and products. Our
success will depend on our ability to engage consumers who have
historically shopped for and purchased insurance through traditional
distribution channels. In order for us to be successful, many of these
consumers must be willing to utilize new ways of conducting business
and exchanging information. In addition, a substantial proportion of
the consumers who use our website may be using our service because it
is new and different rather than because they believe that it offers a
better way to shop for insurance. Such consumers may use our service
only once or twice and then return to more familiar means of shopping
for and purchasing insurance.
IF THE INTERNET DOES NOT CONTINUE TO DEVELOP AND RELIABLY SUPPORT THE DEMANDS
PLACED ON IT BY ELECTRONIC COMMERCE AND OTHER HIGH VOLUME APPLICATIONS, OUR
BUSINESS WILL SUFFER
The Internet may not become a viable medium for commerce or comparison
insurance shopping for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or
delayed development of enabling technologies and performance
improvements. If the Internet continues to experience significant
growth in the number of users, levels of traffic or networks'
capacities for transmitting large amounts of data, the Internet's
infrastructure may not be able to support the demands placed upon it.
The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure, and it could face
additional outages and delays in the future. These outages and delays
could reduce the level of traffic and therefore the number of consumer
insurance inquiries on our website. In addition, the Internet could
lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services to support the
Internet could also result in slower response times and reduced use of
the Internet.
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<PAGE>
REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD INHIBIT
THE GROWTH OF THE INTERNET AND OTHERWISE HARM OUR BUSINESS
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. Furthermore, the growth
and development of the market for electronic commerce may prompt the
enactment of more stringent consumer protection laws that may impose
additional burdens on companies conducting business online. The
adoption of additional laws or regulations may inhibit the growth of
the Internet as a medium for commerce and comparison insurance
shopping, which could, in turn, decrease demand for our services,
increase our cost of doing business, or otherwise harm our business. In
addition, applicability to the Internet of existing laws governing
issues including property ownership, copyrights and other intellectual
property issues, taxation, libel and personal privacy is uncertain. The
vast majority of these laws were adopted prior to the advent of the
Internet and related technologies and, as a result, do not contemplate
or address the unique issues of the Internet and related technologies.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO VARIOUS RISKS
As of May 1, 2000, our international operations consist of
activities with and through our joint venture partner, InsWeb Japan
K.K. (of which we currently own a 25% equity interest) to develop
and maintain an online insurance marketplace in Japan. Though our
foreign operations are limited, they are subject to various inherent
risks, including:
- the impact of recessions in foreign economies on the level
of consumers' insurance shopping and purchasing behavior;
- greater difficulty in accounts receivable collection and
longer collection periods;
- unexpected changes in regulatory requirements, particularly
with respect to the insurance industry;
- difficulties and costs of staffing and managing foreign
operations;
- reduced protection for intellectual property rights in some
countries;
- potentially adverse tax consequences; and
- political and economic instability.
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND HARM OUR OPERATING RESULTS
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise.
For example, in December 1998, we acquired Benelytics, Inc., a
developer of employee health benefits selection and management software
and reference data products. The process of integrating any acquired
business, technology, service or product into our business and
operations may result in unforeseen operating difficulties and
expenditures. Integration of an acquired company also may consume much
of our management's time and attention that would otherwise be
available for ongoing development of our business. Moreover, the
anticipated benefits of any acquisition may not be realized. We may be
unable to identify, negotiate or finance future acquisitions
successfully, or to integrate successfully any acquisitions with our
current
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<PAGE>
business. Future acquisitions could result in potentially dilutive
issuances of equity securities or the incurrence of debt, contingent
liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could harm our business. For example,
in connection with the Benelytics acquisition, we recorded $7.3 million
in goodwill, which will be amortized over a period of three years, and
$1.4 million to software and other intangible assets, which will be
amortized over two years.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
We regard our intellectual property as critical to our success. We rely
on trademark, copyright and trade secret laws to protect our
proprietary rights. We have registered the INSWEB mark in the United
States, France, Germany, South Korea and the United Kingdom and
applications are pending in several other countries. Other United
States and worldwide trademark applications include, but are not
limited to, eAgent, InsWeb.com, Powered by InsWeb, and Where You and
Your Insurance Really Click. We have patent applications on file in the
United States. Our trademark registration and patent applications may
not be approved or granted, or, if granted, may be successfully
challenged by others or invalidated through administrative process or
litigation. Notwithstanding these laws, we may be unsuccessful in
protecting our intellectual property rights or in obtaining patents or
registered trademarks for which we apply.
WE MAY BE SUBJECT TO CLAIMS FOR INFRINGEMENT OF INTELLECTUAL PROPERTY, WITH OR
WITHOUT MERIT, WHICH COULD BE COSTLY TO DEFEND OR SETTLE
We may from time to time be subject to claims of infringement of other
parties' proprietary rights or claims that our own trademarks, patents
or other intellectual property rights are invalid. We have been and are
currently subject to infringement claims in the ordinary course of
business, including claims of alleged infringement of the patent and
trademark rights of third parties by us and companies with which we
have business relationships. Any claims of this type, with or without
merit, could be time-consuming to defend, result in costly litigation,
divert management attention and resources or require us to enter into
royalty or license agreements. License agreements may not be available
on reasonable terms, if at all, and the assertion or prosecution of any
infringement claims could significantly harm our business.
WE INCORPORATE THIRD-PARTY TECHNOLOGIES AND SERVICES INTO OUR ONLINE
MARKETPLACE, AND IF THE PROVIDERS OF THESE TECHNOLOGIES AND SERVICES FAIL IN A
TIMELY MANNER TO DEVELOP, LICENSE OR SUPPORT TECHNOLOGY NECESSARY TO OUR
SERVICES, MARKET ACCEPTANCE OF OUR ONLINE MARKETPLACE COULD BE HARMED
We have incorporated technology developed by third parties into our
online marketplace, and we will continue to incorporate third-party
technology in our future products and services. We have limited control
over whether or when these third-party technologies will be developed
or enhanced. If a third-party fails to timely develop, license or
support technology necessary to our services, market acceptance of our
online marketplace could be harmed.
OUR STOCK PRICE MAY FLUCTUATE WIDELY, AND INTERNET STOCKS IN GENERAL HAVE BEEN
EXTREMELY VOLATILE
The trading price of our common stock has been highly volatile and may
be significantly affected by factors including actual or anticipated
fluctuations in our operating results, new products or new contracts by
us or our competitors, loss of key customers, conditions and trends in
the electronic commerce and insurance industries, changes in financial
estimates by securities analysts, general market conditions and other
factors. The trading prices of many Internet stocks have experienced
extreme price and volume fluctuations. These fluctuations often have
been unrelated or disproportionate to the operating performance of
these companies. These fluctuations may continue and could harm our
stock price. Any negative change in the public's perception of the
prospects of Internet or electronic commerce companies could also
depress our stock price regardless of our results.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER, EVEN IF SUCH A TRANSACTION WOULD BE BENEFICIAL
TO OUR STOCKHOLDERS
Provisions of Delaware law and our certificate of incorporation and
bylaws could make more difficult the acquisition of us by means of a
tender offer, a proxy contest, or otherwise, and the removal of
incumbent officers and directors.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
InsWeb is exposed to financial market risks including changes in
interest rates and, to a lesser degree, foreign currency exchange
rates. The fair value of InsWeb's investment portfolio or related
income would not be significantly affected by either a 10% increase or
decrease in interest rates due mainly to the short term nature of the
major portion of InsWeb's investment portfolio. InsWeb's interest
income is sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our funds are invested in
instruments with maturities less than one year, except for certain U.S.
agency securities which are designated to support our letter of credit
whose maturity is two years. InsWeb's policy is to limit the risk of
principal loss and ensure the safety of invested funds by limiting
market and credit risk. Funds in excess of current operating
requirements are invested in obligations of the U.S. government and its
agencies and investment grade obligations of state and local
governments and large corporations.
The table below represents carrying amounts and related
weighted-average interest rates by year of maturity of InsWeb's
investment portfolio at March 31, 2000:
<TABLE>
<CAPTION>
2000 2001 TOTAL
---- ---- -----
<S> <C> <C> <C>
(In thousands, except interest rates)
Cash and money market funds $14,423 -- $14,423
Average interest rate 4.7% -- 4.7%
Investments $57,836 $8,980 $66,816
Average interest rate 6.0% 7.0% 6.1%
Total investment securities $72,259 $8,980 $81,239
Average interest rate 5.0% 7.0% 5.9%
</TABLE>
InsWeb's revenue and capital spending is transacted in U.S. dollars. As
discussed in the notes to the consolidated financial statements, InsWeb
investment in InsWeb Japan K.K. and the note payable to strategic
partner and shareholder is denominated in Japanese Yen. InsWeb has not
engaged in hedging transactions to reduce its exposure to fluctuations
that may arise from changes in foreign exchange rates. Based on
InsWeb's overall currency rate exposure at March 31, 2000 a near-term
10% appreciation or depreciation would have an immaterial affect on
InsWeb's operating results or financial condition.
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<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS
--------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report dated May 3, 2000 regarding the announcement of first
quarter results and loss of State Farm as a customer.
Current Report dated March 1, 2000 regarding the resignation of Stephen
Robertson, Chief Financial Officer
27
<PAGE>
INSWEB CORPORATION
(REGISTRANT)
Dated: May 15, 2000 /s/ Mark P. Guthrie
------------------------
Mark P. Guthrie
Executive Vice President, Chief
Operating Officer and Chief
Financial Officer (acting)
28
<PAGE>
EXHIBIT INDEX
EXHIBIT
-------
27.1 Financial Data Schedule
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,815
<ALLOWANCES> (118)
<INVENTORY> 0
<CURRENT-ASSETS> 87,663
<PP&E> 12,655
<DEPRECIATION> (3,674)
<TOTAL-ASSETS> 109,852
<CURRENT-LIABILITIES> 7,371
<BONDS> 1,460
0
0
<COMMON> 35
<OTHER-SE> 100,633
<TOTAL-LIABILITY-AND-EQUITY> 109,852
<SALES> 8,617
<TOTAL-REVENUES> 8,617
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,027
<LOSS-PROVISION> 97
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> (13,077)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,077)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,077)
<EPS-BASIC> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
