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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2004

or

For the transition period from             to             

Commission File Number 0-25131

INFOSPACE, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (425) 201-6100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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  ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange act).    Yes  x    No  ¨.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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INFOSPACE, INC.

FORM 10-Q

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Part I—Financial Information

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Item 1.—Financial Statements

INFOSPACE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

See accompanying notes to unaudited condensed consolidated financial statements.

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INFOSPACE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands, except per share data)

See accompanying notes to unaudited condensed consolidated financial statements.

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INFOSPACE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

See accompanying notes to unaudited condensed consolidated financial statements.

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INFOSPACE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

InfoSpace, Inc. (the “Company” or “InfoSpace”) is a diversified technology and services company. The Company develops and markets innovative technology solutions for a broad range of customers ranging from consumers to merchants to wireless operators and content providers.

On June 3, 2004, the Company completed the acquisition of Switchboard Incorporated (“Switchboard”). Pursuant to the Agreement and Plan of Merger, the Company acquired all of the outstanding stock of Switchboard in exchange for cash of $159.4 million, plus estimated transaction fees of approximately $5.6 million, for an aggregate purchase price of approximately $165.0 million. As of the acquisition date, Switchboard had approximately $56.4 million in cash and marketable securities and no debt. The acquisition of Switchboard has been accounted for under the purchase method of accounting. The results of operations of Switchboard are included in the Company’s consolidated results from the date of acquisition.

On March 31, 2004, the Company completed the sale of its Payment Solutions business to Lightbridge, Inc. (“Lightbridge”), for $82 million in cash. The operating results of the Payment Solutions business have been presented as a discontinued operation in the Condensed Consolidated Statements of Operations and on the Condensed Consolidated Balance Sheets.

During the three months ended March 31, 2004, the Company revised the presentation of its Consolidated Statements of Operations to eliminate the caption Cost of Revenues and separately present Content and Distribution, Systems and Network Operations and Depreciation expense. Content and Distribution expenses were previously included in Cost of Revenues and Sales and Marketing, and Systems and Network Operations were previously included in Cost of Revenues. Additionally, the Company made certain reclassifications to the 2003 balance sheet accounts to conform to the 2004 presentation. The reclassifications did not impact previously reported revenues, total operating expense, operating income, net loss, total assets, total liabilities or stockholders’ equity.

The accompanying unaudited Condensed Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments that, in the opinion of management, are necessary to present fairly the financial information set forth herein. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Results of operations for the three- and six-month periods ended June 30, 2004 are not necessarily indicative of future financial results. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts may differ, perhaps materially, from these financial estimates.

Investors should read these interim financial statements and related notes hereto in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003.

The Company accounts for its stock-based compensation plans under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. In accordance with APB Opinion No. 25, the Company does not record any expense when stock options are granted with an exercise price set at or above the fair market value of the Company’s stock at the date of grant.

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To estimate compensation expense, which would be recognized under Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-based Compensation, the Company uses the Black-Scholes option-pricing model with the following weighted-average assumptions for options granted:

Had compensation expense for the plans been determined based on the fair value of the options at the grant dates for awards under the plans consistent with SFAS No. 123, the Company’s net income (loss) for the three and six months ended June 30, 2004 and 2003 would have been as follows (amounts in thousands, except per share data):

On June 3, 2004 the Company completed the acquisition of Switchboard, a provider of local online advertising and internet based yellow pages. Pursuant to the Agreement and Plan of Merger, the Company acquired all of the outstanding stock of Switchboard for $7.75 per share in cash totaling approximately $159.4 million, plus estimated transaction fees of approximately $5.6 million, for an aggregate purchase price of approximately $165.0 million. The Company acquired Switchboard to further expand its presence in the online directory industry, because of Switchboard’s brand name and trademark recognition and existing traffic base, among other items. As of the acquisition date, Switchboard had approximately $56.4 million in cash and marketable securities and no debt.

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The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as follows (in thousands):

The tangible assets acquired and liabilities assumed were recorded at their fair values, which approximated their carrying amounts at the acquisition date. The expected life of the developed core technology is assumed to be three years, after which substantial modifications and enhancements would be required for the technology to remain competitive. The expected lives of the customer contracts and merchant listings are assumed to range between one and three years, which is consistent with the expected cash flows from the contracts and merchant listings. The Company has determined that the acquired trademark and trade name have indefinite lives, and, therefore, these intangible assets will not be amortized to expense unless a determination is made in the future that the useful lives are definite. The Company evaluates the carrying value of its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.

The allocation of the purchase price is subject to adjustments, which may include adjustments to assumed accounts receivable, accounts payable, fixed assets, prepaid expenses and other assets. Additionally, management of the Company is finalizing its plan for the integration of Switchboard, including assessment of resource and infrastructure requirements. The implementation of the plan may result in an adjustment to the purchase price allocation.

The unaudited financial information in the table below summarizes the combined results of operations of InfoSpace and Switchboard, on a pro forma basis, as though the companies had been combined as of the beginning of each period presented. This pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition occurred at the beginning of each three- and six-month period presented. The unaudited pro forma condensed combined statement of operations for the three months ended June 30, 2004 combines the historical results of operations of InfoSpace for the three months ended June 30, 2004 and the historical results of Switchboard for the period from April 1 to June 3, 2004. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2004 combines the historical results of operations of InfoSpace for the six months ended June 30, 2004 and the historical results of Switchboard for the period from January 1 to June 3, 2004. The unaudited pro forma condensed combined statement of operations for the three and six months ended June 30, 2003 combines the historical results of operations of InfoSpace for the three and six months ended June 30, 2003 and the historical results of Switchboard for the three and six months ended June 30, 2003. The following amounts are in thousands, except per share data.

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In June 2004, the Company signed an agreement to acquire the assets of Atlas Mobile, Inc., a provider of mobile multi-player tournament games, for $6.3 million in cash. The transaction was consummated in July 2004. The Company is currently assessing the fair value of the assets acquired for allocation of the purchase price.

On March 31, 2004, the Company consummated the sale of its Payment Solutions business. The sale of the Company’s Payment Solutions business resulted in a net gain of $29.0 million, comprised of aggregate proceeds from the sale of $82 million less the net book value of assets sold of $49.3 million (including goodwill of $48.9 million) and transaction related costs of $3.5 million, which consist of investment bank fees, legal fees and employee related costs. In the three months ended June 30, 2004, the Company increased the net gain by $133,000 as a result of finalizing expenses associated with the sale of its Payment Solutions business.

In connection with the sale of the Payment Solutions business, the Company has agreed to indemnify the buyer for liability, if any, resulting from the plaintiffs’ claims relating to certain outstanding litigation (Note 7). The Company has determined the fair value of such indemnification to be negligible.

Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of the incremental common shares issuable upon conversion of the exercise of outstanding stock options and warrants using the treasury stock method. Potentially dilutive shares are excluded from the computation of earnings per share if their effect is antidilutive.

The treasury stock method calculates the dilutive effect for only those stock options and warrants whose exercise price is less than the average stock price during the period presented. Using the treasury stock method, stock options and warrants to purchase 4,329,873 and 4,184,294 shares of common stock were included in the calculation of diluted net income per share for the three and six months ended June 30, 2004, respectively. Stock options and warrants to purchase 2,527,927 and 2,648,128 shares of common stock were excluded from the calculation of diluted income per share for the three and six months ended June 30, 2004, respectively, as they were antidilutive. Stock options and warrants to purchase 7,060,164 and 7,122,792 shares of common stock were excluded from the calculation of diluted loss per share for the three and six months ended June 30, 2003, respectively, as they were antidilutive.

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The Company has invested in equity instruments of public and privately held companies for business and strategic purposes. The Company does not exercise significant influence over the operating or financial policies of any of the companies in which it has invested, and therefore accounts for such investments under the cost method. The Company accounts for its equity investments in public companies in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 115 and Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 59, Accounting for Noncurrent Marketable Equity Securities, provide guidance on determining when an investment is other-than-temporarily impaired. The Company periodically evaluates whether the declines in fair value of its investments are other-than-temporary. This evaluation consists of a review by the Company’s senior finance personnel. For investments with publicly quoted market prices, the Company compares the market price to the Company’s accounting basis and, if the quoted market price is less than the Company’s accounting basis for an extended period of time, the Company then considers additional factors to determine whether the decline in fair value is other-than-temporary, such as the financial condition, results of operations and operating trends for the investee company. The Company also reviews publicly available information regarding the investee companies, including reports from research analysts. The Company also evaluates whether: 1) the Company has both the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value; 2) the decline in fair value is attributable to specific adverse conditions affecting a particular investment; 3) the decline is attributable to more general conditions in an industry or geographic area; 4) the decline in fair value is attributable to seasonal factors; 5) a debt security has been downgraded by a rating agency; 6) the financial condition of the issuer has deteriorated; and 7) if applicable, dividends have been reduced or eliminated or scheduled interest payments on debt securities have not been made. For investments in private companies with no quoted market price, the Company considers similar qualitative factors as noted above and also considers the implied value from any recent rounds of financing completed by the investee as well as market prices of comparable public companies. The Company requests from the private investee companies their annual and quarterly financial statements to assist the Company in reviewing relevant financial data and to assist the Company in determining whether such data may indicate other-than temporary declines in fair value below the Company’s accounting basis.

Gain (loss) on equity investments for the three and six months ended June 30, 2004 and 2003 consists of the following (in thousands):

In June 2004, the Company entered into an agreement to sell its equity investments in privately held companies for approximately $500,000, which approximated their carrying values. Additionally, during the six months ended June 30, 2004, the Company recognized a $1.4 million increase in the fair value of one of its warrants to purchase shares in a privately held company and, subsequently, the warrant was purchased for $1.4 million as part of the sale of the privately held company.

During the six months ended June 30, 2003, the Company sold one of its investments in a privately held company and recognized a gain of $1.7 million on proceeds of $6.7 million, and sold investments in publicly held companies and recognized a loss of $1.4 million on proceeds of $1.1 million, for an aggregate net gain of $252,000. Additionally, the Company determined that there was an other-than-temporary impairment of certain of its equity investments in privately held companies and recorded a loss of $11.9 million and $12.2 million during the three and six months ended June 30, 2003.

As of June 30, 2004, the Company has sold or otherwise disposed of the majority of its investments in publicly and privately held companies.

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As of June 30, 2004, the Company had $13.2 million recorded as a payroll tax receivable. In October 2000, Anuradha Jain, a former officer of the Company and the spouse of Naveen Jain, the Company’s former chairman and chief executive officer, exercised non-qualified stock options. The Company withheld and remitted to the Internal Revenue Service (“IRS”) $12.6 million for federal income taxes based on the market price of the stock on the day of exercise and the Company also remitted the employer payroll tax of $620,000. Due to the affiliate lock-up period from a merger involving the Company, the former officer was restricted from transferring or selling the stock until February 2001. Management of the Company believed that the Treasury Regulations provide that taxable income is not recognized until this restriction has lapsed. The Company, therefore, returned the federal income tax withholding to the former officer and filed an amendment to its payroll tax return to request the tax refund. The Company’s payroll tax returns for the year 2000 have been audited by the IRS. The Company has received an examination report from the IRS disallowing the claim for the refund of $13.2 million. The Company intends to appeal that determination by the IRS and/or seek recovery from the former officer. The Company believes that it has meritorious arguments to recover this receivable and that recovery of this receivable is probable. However, there can be no assurance regarding the timing, structure or extent of the Company’s recovery of this payroll tax receivable.

In April 2003, the Company reached a settlement agreement with the IRS regarding certain aspects of the audit of the Company’s payroll tax returns for the year 2000. The audit included a review of tax withholding on stock options exercised by certain former employees. The Company recorded a charge to other operating expenses of $4.0 million, which includes penalties and estimated interest, during the three months ended March 31, 2003. Pursuant to the settlement agreement, the Company is relieved of any further withholding tax liability with respect to those certain former employees.

Litigation:

On March 19, 2001, a purported shareholder derivative complaint entitled Youtz v. Jain, et al. was filed in the Superior Court of Washington (King County). The complaint has been amended four times thus far and has been renamed Dreiling v. Jain, et al. The named defendants include certain current and former officers and directors of the Company, entities related to several of the individual defendants, and the Company’s auditor; the Company is named as a “nominal defendant.” The complaint alleges that certain defendants breached their fiduciary duties to InfoSpace, that certain defendants were unjustly enriched by engaging in insider trading, and that certain defendants breached their fiduciary duties in connection with the Go2Net Inc., Prio, Inc., and INEX Corporation mergers. Various equitable remedies are requested in the complaint, including disgorgement, restitution, accounting and imposition of a constructive trust as well as monetary damages. The complaint is derivative in nature and does not seek monetary damages from, or the imposition of equitable remedies on, the Company. The Company has entered into indemnification agreements in the ordinary course of business with its officers and directors and may be obligated throughout the pendency of this action to advance payment of legal fees and costs incurred by the defendant current and former officers and directors pursuant to the Company’s obligations under the indemnification agreements and applicable Delaware law. The special litigation committee of the Company’s Board of Directors (“SLC”), with the assistance of independent legal counsel, conducted an investigation relating to the complaint allegations, and in March 2002, filed a motion to terminate this derivative action. In May 2003, the court entered an order on the motion to terminate the action and related motions. In its May 2003 order, the court terminated the breach of fiduciary duty claims regarding the merger with Prio, Inc., terminated the claims against one defendant and his related entities, and stayed the case as to the remaining claims. In June 2003, the SLC filed a motion for discretionary review in the Washington Court of Appeals requesting appellate review of the trial court’s order. The Court of Appeals has denied the SLC’s motion for discretionary review.

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On March 10, 2003, the Company filed a lawsuit in the Superior Court of Washington (King County) entitled InfoSpace Inc. v. Naveen Jain, et al. The complaint names as defendants Naveen Jain, the Company’s former chief executive officer and chairman; Kevin Marcus, the Company’s former chief software architect; and the company they co-founded, Intelius Inc. The complaint alleges that the defendants breached their fiduciary and contractual duties owed to the Company, wrongfully interfered with the Company’s contractual relationships and misappropriated InfoSpace’s trade secrets and confidential information in order to unfairly compete with the Company. The complaint asserts a number of claims, including breaches of fiduciary duty and contract, conversion, tortious interference, unfair competition, misappropriation of trade secrets, and civil conspiracy. The Company seeks injunctive relief and monetary damages in an amount to be proven at trial. In March 2003, Intelius filed its answer to the Company’s complaint, denying the Company’s claims and asserting various counterclaims against the Company including breach of fiduciary duty, defamation and unfair competition. In May 2003, the Court issued an oral decision denying the Company’s motion for preliminary injunction against Jain, Marcus and Intelius. In November 2003, Intelius voluntarily dismissed their counterclaims and the Company voluntarily dismissed certain claims against Marcus. In January 2004, the Court granted summary judgment in favor of Jain and Marcus on the Company’s claim for breach of contract. In response to the Company’s motion, the Court indicated it will certify its ruling for appeal, and the Company plans to appeal that ruling, among others. The Company believes that it has meritorious bases for its appeal, but litigation is inherently uncertain and the Company may not prevail in this matter.

In September of 2000, Go2Net sued FreeYellow.com, Inc., a Florida corporation, and John Molino, FreeYellow’s sole shareholder, in the Superior Court of Washington (King County) seeking to rescind its acquisition of FreeYellow that closed in October 1999, and in the alternative, seeking damages. Molino denied the allegations, and asserted a counterclaim for breach of the merger agreement. In October 2000, Go2Net was acquired by and became a wholly owned subsidiary of InfoSpace. In August 2001, Go2Net amended the complaint to add a claim against FreeYellow and Molino under the Securities Act of Washington (“WSA”). The trial occurred in August 2002, and the jury returned a verdict in favor of Go2Net on its WSA claim. In January 2003, the judge entered a judgment pursuant to which Mr. Molino owes Go2Net $1.2 million plus interest at 12% per annum from December 31, 2002. Molino is appealing the judgment and oral argument before the Washington Court of Appeals was held in March 2004. The Court of Appeals decision is pending.

Two of nine founding shareholders and three other shareholders of Authorize.Net Corporation, a subsidiary acquired through the Company’s merger with Go2Net, filed a lawsuit in May 2000 in Utah State Court. This action was brought to reallocate amongst the founding shareholders of Authorize.Net the consideration received in the acquisition of Authorize.Net by Go2Net. The plaintiffs are making claims under the Utah Uniform Securities Act as well as claims of fraud, negligent misrepresentation, breach of fiduciary duty, conflict of interest, breach of contract and related claims, and seek compensatory and punitive damages in the amount of $200 million, rescission of certain transactions in Authorize.Net securities, and declaratory and injunctive relief. The plaintiffs subsequently amended the claim to name Authorize.Net as a defendant with regard to the claims under the Utah Uniform Securities Act and have asserted related claims against Go2Net; the case is now captioned Patrick O’Keefe II, et al. v. David O’Heaps, et al. Authorize.Net updated and re-filed its prior motion for summary judgment seeking dismissal of all claims against it. Authorize.Net previously asserted counterclaims against the plaintiffs on which plaintiffs also have now filed for summary judgment. Pursuant to the Company’s sale of Authorize.Net to Lightbridge, Inc. (“Lightbridge”), the Company has agreed to indemnify Lightbridge for liability, if any, resulting from the plaintiffs’ claims. The Company believes Authorize.Net and Go2Net have meritorious defenses to these claims, but litigation is inherently uncertain and they may not prevail in this matter.

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On June 6, 2003, a complaint entitled Enger v. Richards, filed in the Superior Court of the State of Washington (King County), was amended to add the Company and its former Chief Executive Officer as defendants. The action alleges claims under the Racketeer Influenced and Corrupt Organization Act (“RICO”) and Washington Securities Act and various common law causes of action in connection with the sale of Yellow Pages on the Internet, LLC to the Company in May of 1997. The amended complaint seeks damages that the plaintiff estimates to be $127.8 million. In December 2003, the plaintiff voluntarily dismissed the Company from this action. In January 2004, John Richards (a former Company employee) amended his answer to the complaint to assert a third-party claim for indemnification against the Company. In February 2004, Naveen Jain amended his answer to assert a third-party claim for indemnification against the Company. In July 2004, the Court dismissed with prejudice the plaintiff’s RICO and conspiracy claims against Jain and Richards. The Company believes it has meritorious defenses to the claims for indemnification, but litigation is inherently uncertain and the Company may not prevail in this matter.

On March 26, 2004, a complaint entitled Alexander Hutton Capital, L.L.C. v. John Richards, Naveen Jain, et al., was filed in the Superior Court of the State of Washington (King County). As in the Enger v. Richards case (above) to which it is related, this action alleges claims under RICO and the Washington Securities Act, and various common law causes of action in connection with the sale of Yellow Pages on the Internet, LLC to the Company in May of 1997. Also alleged are claims associated with civil conspiracy, violations of the Consumer Protection Act and wire fraud. The complaint seeks damages that the plaintiff estimates to be $174.8 million. In April 2004, Naveen Jain filed an answer in which he asserts a third party claim for indemnification against the Company. Defendant John Richards (a former Company employee) has indicated his intent to seek indemnification by the Company. In June 2004, the Court dismissed with prejudice the plaintiff’s RICO and conspiracy claims against Jain and Richards. The Company believes it has meritorious defenses to the claims for indemnification, but litigation is inherently uncertain and the Company may not prevail in this matter.

On September 26, 2001, a complaint entitled Dreiling v. Kellett, et al. was filed by a shareholder plaintiff in the United States District Court for the Western District of Washington. The complaint sought disgorgement of “short swing” profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. The complaint was subsequently amended to add Naveen and Anuradha Jain (“the Jains”), former executives of the Company, and certain Jain trusts as defendants. The complaint does not seek damages or other remedies from the Company. In February 2003, the Kellett defendants settled with plaintiff for $5.5 million. The Court approved that settlement in June 2003 and awarded to plaintiff’s counsel fees equal to 25% of the settlement amount, plus the costs of the action, with the balance of the settlement accruing to the Company. The Company recognized a gain of $4.1 million in the second quarter of 2003 for this settlement which was collected in 2003. The complaint was subsequently recaptioned Dreiling v. Jain, et al., and in May 2003, the Court granted plaintiff’s motion for summary judgment against the Jains and found that they were liable for violating Section 16(b). In August 2003, the Court entered judgment against the Jains in the amount of approximately $247 million, consisting of damages plus prejudgment interest. The Jains are appealing that judgment, and the outcome of the appeal is inherently uncertain.

On August 28, 2003, the Jains filed a complaint entitled Naveen Jain, et al. v. InfoSpace, Inc., et al. in Superior Court in the State of Washington (King County) against the Company and other parties, seeking declaratory relief and damages based on defendants’ alleged actions in connection with the transactions underlying the $247 million judgment entered against the Jains in the Dreiling v. Jain, et al. litigation, described above. The Company believes it has meritorious defenses to the Jains’ complaint, but litigation is inherently uncertain and the Company may not prevail in this matter.

On August 29, 2003, the Jains filed a complaint entitled Naveen Jain, et al. v. Clarendon American Insurance Company, et al. in Superior Court in the State of Washington (King County) against the Company and certain insurance companies providing directors’ and officers’ liability insurance (“D&O Insurance”) to InfoSpace and its current and former directors and officers for the period covered by the Dreiling v. Jain, et al. litigation described above. The Jains allege in their complaint that the D&O Insurance should be available to offset the Jains’ $247 million judgment entered in Dreiling v. Jain. The Company believes it has meritorious defenses to the Jains’ complaint, but litigation is inherently uncertain and the Company may not prevail in this matter.

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On June 19, 2001, a putative securities class action complaint entitled Horton v. InfoSpace, Inc., et al. was filed in the United States District Court for the Western District of Washington. The complaint alleges that the Company and its former chief executive officer made false and misleading statements about the Company’s business and prospects during the period between January 26, 2000 and January 30, 2001. The complaint alleges violations of the federal securities laws and does not specify the amount of damages sought. Subsequently, other similar complaints were filed. The Horton matter and the subsequent similar complaints have been consolidated into one matter, captioned In re InfoSpace, Inc. Securities Litigation. The Court appointed lead plaintiffs and counsel, and a consolidated complaint was filed in January 2002, which among other things, added the Company’s former chief financial officer as a defendant. In April 2002, the Company filed a motion to dismiss the complaint. An amended complaint was filed in May 2002 adding Merrill Lynch & Co., Inc. and one of its analysts as defendants, in response to which the Company filed a new motion to dismiss in July 2002. The various claims pending against the Merrill Lynch parties have been severed from the case. In May 2004, the Court approved a settlement of the case pursuant to which the Company’s insurance carriers paid $34.3 million to the class (with no payments made by InfoSpace or the other defendants), and the case was dismissed with prejudice.

In addition, from time to time the Company is subject to various other legal proceedings that arise in the ordinary course of business or are not material to our business. Although the Company cannot predict the outcomes of the other proceedings with certainty, the Company’s management does not believe that the disposition of these ordinary course matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Other Contingencies:

The Company has pledged a portion of its cash and cash equivalents as collateral for standby letters of credit and a bank guaranty for certain of its property leases. On June 30, 2004, the total amount of collateral pledged under these agreements was approximately $4.5 million.

Restructuring charges and other, net for the three and six months ended June 30, 2004 and 2003, consists of the following (in thousands):

In June 2004, the Company recorded a restructuring charge adjusting its estimated reserves for its future excess facilities costs, based on reducing the present value of future committed lease payments by estimated sublease rental income, net of estimated sublease costs or the cost to terminate the excess facilities leases. During June 2004, the Company entered into lease termination agreements with its landlord for the majority of its excess facilities. The aggregate cost to terminate such leases amounted to approximately $2.4 million, which will be paid from June 2004 to December 2004.

In April 2003, the Company announced a reduction in its workforce and, as part of the workforce reduction, consolidated its corporate facilities. The Company recorded $10.5 million in charges relating to those restructuring activities in the three months ended June 30, 2003. The restructuring charges consist of $3.9 million in employee severance and other separation charges, a $4.3 million charge related to its excess facilities, $1.9 million to write down leasehold improvements and equipment related to the excess facilities, and $405,000 of lease termination costs. The estimated future excess facilities cost is based on reducing the present value of future committed lease payments by the estimated sublease rental income, net of estimated sublease costs. During the three months ended March 31, 2003, a restructuring charge of $167,000 was recorded which primarily related to the realized loss on foreign currency fluctuations due to the closure of the Australia operations.

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As of June 30, 2004, the accrued liability associated with restructuring related charges was $2.1 million, which is included in Accrued expenses and other current liabilities, and restructuring charges and payments in the six months ended June 30, 2004 consisted of the following (in thousands):

During the three months ended June 30, 2004, the Company settled a litigation matter concerning promissory notes due from, Bernee D.L. Strom, a former officer, resulting in a gain of $3.9 million. Pursuant to the settlement agreement, the Company received $3.3 million in cash and 18,438 shares of the Company’s common stock with a fair value of $622,000 from the former officer in full settlement of promissory notes previously recorded for $10.0 million and interest earned on the promissory notes of $1.6 million. The Company previously recorded a full valuation allowance related to the promissory notes and related interest. Additionally, during the six months ended June 30, 2004, the Company recorded a charge of $1.2 million related to the separation of a former executive officer.

In April 2003, the Company reached a settlement agreement with the IRS regarding certain aspects of the audit of the Company’s payroll tax returns for the year 2000. The Company recorded a charge of $4.0 million, which includes penalties and estimated interest, in the six months ended June 30, 2003.

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that companies report information about operating business units in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers.

The Company measures the results of its reportable segments based on operating income or loss before depreciation, amortization and impairment of goodwill and other intangible assets, restructuring charges, other charges, gains and losses on equity investments and the cumulative effect of changes in accounting principle. This measure is referred to as segment income (loss). Certain indirect expenses are allocated to the reportable business units based on internal usage measurements. The Company does not allocate certain indirect general and administrative expenses, income taxes or interest income to the reportable business units.

On June 3, 2004 the Company completed the acquisition of Switchboard, a provider of local online advertising and internet based yellow pages. The operating results of Switchboard have been included the operating results of the Search & Directory segment from the date of acquisition.

On March 31, 2004, the Company consummated the sale of its Payment Solutions business. The operating results of Payment Solutions have been presented as a discontinued operation for all periods presented. Income, net of taxes, from the operating results of Payment Solutions were $2.3 million and $140,000 in the six months ended June 30, 2004 and 2003, respectively, which included revenues of $8.4 million and $13.0 million, respectively. Income from discontinued operations includes previously unallocated depreciation, amortization, corporate expenses, and income taxes that were attributed to Payment Solutions. In addition, the Company recorded a gain on sale of its Payment Solutions business of $29.1 million in the six months ended June 30, 2004.

Information on reportable segments currently presented to the Company’s chief operating decision maker and a reconciliation to consolidated net loss for each of the three and six month periods ended June 30, 2004 and 2003, are presented below (in thousands). The Company does not account for, and does not report to management, its assets or capital expenditures by business unit.

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