Attached files
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EX-31.1 - EXHIBIT 31.1 - InsPro Technologies Corp | t81839_ex31-1.htm |
EX-21 - EXHIBIT 21 - InsPro Technologies Corp | t81839_ex21.htm |
EX-32.1 - EXHIBIT 32.1 - InsPro Technologies Corp | t81839_ex32-1.htm |
EX-23.1 - EXHIBIT 23.1 - InsPro Technologies Corp | t81839_ex23-1.htm |
EX-31.2 - EXHIBIT 31.2 - InsPro Technologies Corp | t81839_ex31-2.htm |
EXCEL - IDEA: XBRL DOCUMENT - InsPro Technologies Corp | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2014
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OR
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______________
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to ___________
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Commission file number: 333-123081
INSPRO TECHNOLOGIES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware
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98-0438502
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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150 N. Radnor-Chester Road
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Suite B-101
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Radnor, Pennsylvania
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19087
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(Address of Principal Executive Offices)
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(Zip Code)
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(484) 654-2200
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Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
The aggregate market value of common stock, par value $0.001 per share, held by non-affiliates at June 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was $1,623,777. Such aggregate market value was computed by reference to the closing price of the common stock of the registrant on the Over-the-Counter Bulletin Board on June 30, 2014.
As of March 31, 2015, there were 41,543,655 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
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Page
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PART I
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Item 1. Business
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4
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Item 2. Properties
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7
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Item 3. Legal Proceedings
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7
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Item 4. Mine Safety Disclosures
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7
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PART II
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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8
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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8
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Item 8. Financial Statements and Supplementary Data
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F-1
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
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54
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Item 9A(T). Controls and Procedures
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54
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Item 9B. Other Information
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54
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PART III
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Item 10. Directors, Executive Officers and Corporate Governance
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55
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Item 11. Executive Compensation
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61
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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71
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Item 13. Certain Relationships and Related Transactions, and Director Independence
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77
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Item 14. Principal Accountant Fees and Services
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79
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Item 15. Exhibits and Financial Statement Schedules
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80
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2 |
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements contained in this Annual Report on Form 10-K, including in the Business description, the “Management’s Discussion and Analysis of Financial Condition and Results” and elsewhere in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements. The forward-looking statements herein include, among others, statements addressing management’s views with respect to future financial and operating results and costs associated with our operations and other similar statements. Various factors, including competitive pressures, market interest rates, regulatory changes, customer defaults or insolvencies, litigation, acquisition of businesses that do not perform as we expect or that are difficult for us to integrate or control, adverse resolution of any contract or other disputes with customers could cause actual outcomes and results to differ materially from those described in forward-looking statements.
The words “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. While we believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report on Form 10-K, we caution you that these statements are based on a combination of facts and factors currently known by us and projections of the future about which we cannot be certain. Many factors, including general business and economic conditions, affect our ability to achieve our objectives. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report on Form 10-K will prove to be accurate. In addition, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, if at all. We may not update these forward-looking statements, even though our situation may change in the future.
3 |
PART I
ITEM 1.
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BUSINESS.
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Overview
We are a technology company that provides software applications for use by insurance administrators in the insurance industry. Our business focuses primarily on our InsPro EnterpriseTM software application.
We formed HBDC Acquisition, LLC on September 6, 2007 in connection with the acquisition of Atiam Technologies, L.P. on October 1, 2007. HBDC Acquisition, LLC, which changed its name to InsPro Technologies, LLC on May 14, 2009, develops, sells and supports our InsPro EnterpriseTM software application. InsPro Enterprise is a comprehensive, web-based insurance administration software application, which was introduced by Atiam Technologies L.P. (now our InsPro Technologies, LLC subsidiary) in 2004. InsPro Enterprise clients include insurance carriers and third party administrators. We market InsPro Enterprise as a licensed software application, and we realize revenue from the sale of the software licenses, application service provider and hosting fees, software maintenance fees and consulting and implementation services.
During 2005 through October 1, 2007 our operations were primarily that of our former Telesales business, which we effectively sold in 2009. Our former Telesales business is now classified as part of our discontinued operations.
InsPro Enterprise
Product Evolution and Development
InsPro Technologies, and its predecessor, Systems Consulting Associates, Inc., or SCA, was founded in 1986 by Robert J. Oakes as a programming and consulting services company. In 1988, SCA entered into a long-term contract with Provident Mutual Insurance Company to develop, maintain, install, support and enhance IMACS, which was an insurance direct marketing and administration software system. IMACS was the precursor to InsPro Enterprise. InsPro Technologies dedicated four years, from 2001 to 2005, to developing its principal product, the initial version of InsPro Enterprise, which is a comprehensive, scalable and modular web-based insurance marketing, claims administration and policy servicing platform.
Product and Services
We offer InsPro Enterprise on both a licensed and an ASP (Application Service Provider) basis. InsPro Enterprise is an insurance administration and marketing system that supports group and individual business lines, and efficiently processes agent, direct market, worksite and web site generated business.
During 2014, we earned $18,670,138 in revenue. We earned 22%, 13%, 12% and 11% of our revenue from our four largest InsPro Enterprise clients.
InsPro EnterpriseTM incorporates a modular design, which enables the customer to purchase only the functionality needed, thus minimizing the customer’s implementation cost and time necessary to implement InsPro Enterprise. InsPro Enterprise can be rapidly tailored to the requirements of a wide range of customers from the largest insurance companies and marketing organizations to the smallest third party administrators, operating in environments ranging from a single server environment to the mainframe installations. InsPro Enterprise currently supports a wide range of insurance distribution channels, including the Internet, traditional direct marketing, agent-generated, individual and group plans, worksite and association-booked business, and supports underwritten as well as guaranteed issue insurance products including long term care, Medicare supplement, critical illness, long and short term disability, whole and term life, comprehensive major, hospital indemnity and accidental death and dismemberment.
4 |
An InsPro Enterprise software license entitles the purchaser to a perpetual license to a copy of the InsPro Enterprise software installed at a single client location, which may be used to drive a production and model office instance of the application. The ASP Hosting Service enables a client to lease InsPro Enterprise, paying only for that capacity required to support its business. ASP hosting clients access an instance of InsPro Enterprise installed on our servers located at InsPro Technologies’ offices or at a third party’s site. The ASP Hosting Service can also enable a client to outsource its application management of its perpetually licensed InsPro Enterprise software to InsPro Technologies.
Software maintenance fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and the InsPro Enterprise Help Desk.
Consulting and implementation services are generally associated with the implementation of an InsPro Enterprise instance for either an ASP or licensed client, and cover such activity as InsPro Enterprise installation, configuration, modification of InsPro Enterprise functionality, client insurance plan set-up, client insurance document design and system documentation.
InsPro Enterprise software agreements with our clients often involve multiple elements. We allocate revenue to each element based on the relative fair value or the residual method, as applicable using vendor specific objective evidence to determine fair value, which is based on prices charged when the element is sold separately. Software revenue is recognized when persuasive evidence of an arrangement exists, the software is delivered in accordance with all terms and conditions of the customer contracts, the fee is fixed or determinable and collectability is probable. Maintenance revenue, which pertains to post-contract customer support, including technical support and unspecified when-and-if available software upgrades, is recognized ratably over the maintenance agreement term. If fair value does not exist for any undelivered element, revenue is not recognized until the earlier of (i) delivery of such element or (ii) when fair value of the undelivered element is established, unless the undelivered element is a service, in which case revenue is recognized as the service is performed once the service is the only undelivered element.
Sales, Marketing and Operations
InsPro Technologies markets its products and services directly to prospective insurance carriers and third party administrators via trade shows, advertising in industry publications and direct mail.
InsPro Technologies also provides professional services to its clients, which include InsPro system implementation, legacy system migration to InsPro Enterprise, InsPro Enterprise application management, web development, InsPro Enterprise help desk and 24x7 hosting service support.
Competition
The market for insurance policy administration systems and services is very competitive, rapidly evolving, highly fragmented and subject to technological change. Many of our competitors are more established than we are and have greater name recognition, a larger customer base and greater financial, technical and marketing resources than InsPro Technologies.
InsPro Technologies is focused on the group voluntary (workplace) life and health products, senior health, disability, affinity, long term care and association segments of the insurance industry. InsPro Technologies competes with such concerns as Synnex Corporation (Genelco Software), Computer Sciences Corporation (FutureFirst), LifePro and Fiserv Inc. (ID3), as well as with such smaller enterprises as Management Data, Inc. To compete we use best practice technologies and methods incorporated into InsPro EnterpriseTM, which provides customers with a user-friendly, flexible, modular and cost-effective insurance administrative software system. InsPro Enterprise’s modular design, scalability and ASP hosting service option makes InsPro Enterprise a compelling insurance administrative system for clients ranging from small third party administrators to the largest insurance carriers.
5 |
Employees
As of December 31, 2014 we had 84 full time employees. None of our employees are members of any labor union and we are not a party to any collective bargaining agreement. We believe that the relationship between our management and our employees is good.
Intellectual Property and Proprietary Rights
We rely on a combination of trademark, copyright and trade secret laws in the United States and other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand.
Corporate Information
We were incorporated under the laws of the state of Nevada on October 21, 2004 as Darwin Resources Corp., or Darwin-NV, an exploration stage company engaged in mineral exploration. On November 22, 2005, Darwin-NV merged with and into its newly-formed wholly-owned subsidiary, Darwin Resources Corp., a Delaware corporation, or Darwin-DE, solely for the purpose of changing the company’s state of incorporation from Nevada to Delaware. On November 23, 2005, HBDC II, Inc., a newly-formed wholly-owned subsidiary of Darwin-DE, was merged with and into Health Benefits Direct Corporation, a privately-held Delaware corporation engaged in direct marketing and distribution of health and life insurance and related products primarily over the Internet, and the name of the resulting entity was changed from Health Benefits Direct Corporation to HBDC II, Inc. Following this merger, Darwin-DE changed its name to Health Benefits Direct Corporation and, as a result, HBDC II, Inc. became our wholly-owned subsidiary. We formed HBDC Acquisition, LLC on September 6, 2007 in connection with our acquisition of Atiam Technologies, L.P. on October 1, 2007. HBDC Acquisition, LLC, which changed its name to InsPro Technologies, LLC on May 14, 2009, develops, sells and supports our InsPro EnterpriseTM software application. On November 29, 2010, Health Benefits Direct Corporation changed its name to InsPro Technologies Corporation.
Our principal executive offices are located at 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087. Our telephone number is (484) 654-2200. The principal offices of our wholly-owned subsidiary, InsPro Technologies, LLC, are located at 130 Baldwin Tower, Suite 400, Eddystone, PA 19022 and its web site is www.inspro.com.
Investor Information
All periodic and current reports, registration statements and other material that we are required to file with the Securities and Exchange Commission, or the Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, may be obtained free of charge by writing to us at InsPro Technologies Corporation, 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087 or e-mailing us at finance@inspro.com. Such documents are available as soon as reasonably practicable after electronic filing of the material with the Commission. Our Internet websites and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.
The public may also read and copy any materials we have filed with the Commission at the Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site, www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission.
6 |
ITEM 2.
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PROPERTIES.
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We do not own any real estate.
We lease 7,414 square feet of office space in Radnor, Pennsylvania. We lease this office space under a lease agreement with Radnor Properties-SDC, L.P. The term of the lease commenced on November 1, 2006, and will expire on March 31, 2017. The monthly base rent increases every 12 months, starting at approximately $13,466 and ending at approximately $21,531.
We also lease approximately 17,567 square feet of space in Eddystone, Pennsylvania. We lease this office space under a lease agreement with BPG Officer VI Baldwin Tower L.P. The term of this lease, as amended, commenced on August 1, 2007, and will expire on January 31, 2017. The monthly rent increases every 12 months, starting at approximately $8,500 and ending at approximately $27,814.
ITEM 3.
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LEGAL PROCEEDINGS.
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From time to time we are involved in various investigations, claims and lawsuits arising in the normal conduct of our business, none of which, in our opinion, are material to our business. We cannot assume that we will prevail in any litigation. Regardless of the outcome, any litigation may require us to incur significant litigation expense and may result in significant diversion of our attention.
ITEM 4.
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MINE SAFETY DISCLOSURES.
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Not applicable.
7 |
PART II
ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
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Market Information
Our common stock has been quoted on the OTCBB since December 6, 2010 under the symbol ITCC.OB and from December 13, 2005 until December 3, 2010 under the symbol HBDT.OB. Prior to December 13, 2005, there was no active market for our common stock.
The following table sets forth the high and low bid prices for our common stock for the periods indicated, as reported by the OTCBB. The prices state inter-dealer quotations, which do not include retail mark-ups, mark-downs or commissions. Such prices do not necessarily represent actual transactions.
2013:
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High
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Low
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||||||
First quarter, ended March 31, 2013
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$0.127 | $0.040 | ||||||
Second quarter, ended June 30, 2013
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$0.120 | $0.049 | ||||||
Third quarter, ended September 30, 2013
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$0.120 | $0.050 | ||||||
Fourth quarter, ended December 31, 2013
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$0.210 | $0.030 | ||||||
2014:
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First quarter, ended March 31, 2014
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$0.130 | $0.055 | ||||||
Second quarter, ended June 30, 2014
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$0.490 | $0.040 | ||||||
Third quarter, ended September 30, 2014
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$0.099 | $0.042 | ||||||
Fourth quarter, ended December 31, 2014
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$0.065 | $0.022 | ||||||
2015:
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First quarter, ended March 31, 2015
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$0.090 | $0.040 |
Holders of Record
Based on information furnished by our transfer agent, as of March 31, 2015, we had approximately 109 holders of record of our common stock.
Dividends
We have not declared any cash dividends on our common stock during the last two fiscal years. We have no intention of paying cash dividends in the foreseeable future on our common stock.
ITEM 7.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Overview
The current operations of InsPro Technologies Corporation (the “Company”, “we”, “us” or “our”) consist of the operations of our InsPro Technologies, LLC subsidiary (“InsPro Technologies”).
8 |
InsPro EnterpriseTM is a comprehensive, web-based insurance administration software application. InsPro Enterprise was introduced by Atiam Technologies L.P. (now our InsPro Technologies, LLC subsidiary) in 2004. InsPro Enterprise clients include insurance carriers and third party administrators. We market InsPro Enterprise as a licensed software application, and we realize revenue from the sale of the software licenses, application service provider fees, software maintenance fees and professional services.
Critical Accounting Policies
Financial Reporting Release No. 60, which was released by the Securities and Exchange Commission (the “Commission”), encourages all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Our consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the consolidated financial statements.
Use of Estimates - Management’s Discussion and Analysis or Plan of Operation is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable and long-lived assets such as intangible assets. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates in 2014 and 2013 include the allowance for doubtful accounts, stock-based compensation, the useful lives of property and equipment, warrant liability and revenue recognition. Actual results may differ from these estimates under different assumptions or conditions.
InsPro Technologies offers InsPro Enterprise on both a licensed and an ASP basis. An InsPro Enterprise software license entitles the purchaser a perpetual license to a copy of the InsPro Enterprise software installed at a single client location, which may be used to drive a production and model office instance of the application. The ASP Hosting Service enables a client to lease the InsPro Enterprise software, paying only for that capacity required to support their business. ASP clients access an instance of InsPro Enterprise installed on InsPro Technologies’ servers located at InsPro Technologies’ offices or at a third party’s site.
Software maintenance fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and access to the InsPro Enterprise Help Desk.
Professional services are generally associated with the implementation of an InsPro Enterprise instance for either an ASP or licensed client, and cover such activity as InsPro Enterprise installation, configuration, modification of InsPro functionality, client insurance plan set-up, client insurance document design and system documentation.
9 |
InsPro Technologies revenue is generally recognized under ASC 985-605. For software arrangements involving multiple elements, we allocate revenue to each element based on the relative fair value or the residual method, as applicable using vendor specific objective evidence to determine fair value, which is based on prices charged when the element is sold separately. Software revenue accounted for under ASC 985-605 is recognized when persuasive evidence of an arrangement exists, the software is delivered in accordance with all terms and conditions of the customer contracts, the fee is fixed or determinable and collectability is probable. Revenue related to post-contract customer support (“PCS”), including technical support and unspecified when-and-if available software upgrades, is recognized ratably over the PCS term. Under ASC 985-605, if fair value does not exist for any undelivered element, revenue is not recognized until the earlier of (i) delivery of such element or (ii) when fair value of the undelivered element is established, unless the undelivered element is a service, in which case revenue is recognized as the service is performed once the service is the only undelivered element.
We recognize revenues from software license agreements when persuasive evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. We consider fees relating to arrangements with payment terms extending beyond one year to not be fixed or determinable and revenue for these arrangements is recognized as payments become due from the customer. In software arrangements that include more than one InsPro EnterpriseTM module, we allocate the total arrangement fee among the modules based on the relative fair value of each of the modules.
License revenue allocated to software products generally is recognized upon delivery of the products or deferred and recognized in future periods to the extent that an arrangement includes one or more elements to be delivered at a future date and for which fair values have not been established. Revenue allocated to maintenance agreements is recognized ratably over the maintenance term and revenue allocated to training and other service elements is recognized as the services are performed.
The unearned portion of InsPro Technologies’ revenue, which is revenue collected or billed but not yet recognized as earned, has been included in the consolidated balance sheet as a liability for deferred revenue.
We review the carrying value of property and equipment and intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.
10 |
Results of Operations for the Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013
Revenues
For the year ended December 31, 2014 (“2014”), we earned revenues of $18,670,138 compared to $14,802,268 for the year ended December 31, 2013 (“2013”), an increase of $3,867,870 or 26%. Revenues include the following:
For the Year Ended December 31, | |||||||
2014 | 2013 | ||||||
Professional services
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$
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10,002,240
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$
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6,913,577
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ASP revenue
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4,847,940
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3,901,450
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Sales of software licenses
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2,150,000
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2,550,000
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Maintenance revenue
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1,649,730
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1,434,241
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Other revenue
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20,228
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3,000
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Total
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$
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18,670,138
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$
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14,802,268
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●
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In 2014 our professional services revenue increased $3,088,663 or 45% as a result of higher implementation services. Implementation services included assisting clients in setting up their insurance products in InsPro EnterpriseTM, providing modifications to InsPro Enterprise’s functionality to support the client’s business, interfacing InsPro Enterprise with the client’s other systems, automation of client correspondence to their customers and data conversion from the client’s existing systems to InsPro Enterprise. Post implementation services include these same services to existing clients supporting their ongoing utilization of InsPro Enterprise.
|
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●
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In 2014 our ASP revenue increased $946,490 or 24% as a result of increased fees from ongoing and recent implementations of InsPro Enterprise from several existing clients. ASP hosting service enables a client to either lease InsPro Enterprise software, paying only for that capacity required to support their business, or for a client to outsource the operation of their licensed InsPro Enterprise installation to the Company. ASP hosting clients access InsPro Enterprise installed on the Company’s owned servers located at the Company’s office or at a third party’s site.
|
|
●
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In 2014 we earned $2,150,000 of license fee revenue, which was the sum of a license fee recognized upon the completion of the implementation of additional insurance products for an existing client plus a license fee recognized for a recently implemented client. In 2013 we earned $2,550,000 of license fee revenue, which was a license fee recognized upon the completion of the implementation of InsPro Enterprise for three clients and the licensing of an additional module of InsPro Enterprise for an existing client.
|
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●
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In 2014 our maintenance revenue increased $215,489 or 15% as a result of increased fees from several clients’ recent implementations of InsPro Enterprise.
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●
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Other revenue consists of reimbursements of office and administrative expenses pertaining to various agreements with related and unrelated parties.
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11 |
Cost of Revenues
Our cost of revenues for 2014 was $16,834,833 as compared to $11,626,838 for 2013 for an increase of $5,207,995 or 45% as compared to 2013. Cost of revenues consisted of the following:
For the Year Ended December 31,
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|||||||
2014
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2013
|
||||||
Compensation, employee benefits and related taxes
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$
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7,474,438
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7,543,315
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||||
Professional fees
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7,592,393
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2,754,841
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|||||
Depreciation
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674,674
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536,294
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|||||
Rent, utilities, telephone and communications
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452,836
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420,499
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|||||
Other cost of revenues
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640,492
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371,889
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|||||
$
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16,834,833
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$
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11,626,838
|
|
●
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In 2014 our compensation, employee benefits and related taxes component of cost of revenues decreased $68,877 or 1% as compared to 2013. Compensation, employee benefits and related taxes decreased primarily as a result of decreased executive employee staffing and lower employee benefit costs.
|
|
●
|
In 2014 our professional fees component of cost of revenues increased $4,837,552 or 176% as compared to 2013. Professional fees increased as a result of increased utilization of several outside consulting firms, which were assisting us with modifications to InsPro Enterprise’s functionality and new clients’ implementations of InsPro EnterpriseTM. In the third quarter 2014 the Company engaged a third party consulting firm to be a preferred system integrator for the Company for InsPro Enterprise, which contributed to the increase in cost.
|
|
●
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In 2014 our depreciation component of cost of revenues increased $138,380 or 26% as compared to 2013. Depreciation expense increased as a result of recent computer equipment and software purchases, which were primarily related to recent clients’ implementations of InsPro Enterprise.
|
|
●
|
In 2014 our rent, utilities and communications component of cost of revenues increased $32,337 or 8% as compared to 2013. The increase as a result of an increased allocation of a portion of facilities costs to cost of revenues, which was the result of increased utilization of several outside consulting firms. As a result of allocating an increased portion of cost to cost of revenues the rent, utilities and communications component of general selling and administrative costs decreased as compared to 2013.
|
|
●
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In 2014 our other cost of revenues component of cost of revenues increased $268,603 or 72% as compared to 2013. The increase was primarily the result of increased travel and lodging costs and to a lesser extent computer processing costs associated with the increase in the number of InsPro Technologies’ clients and prospective clients. Other cost of revenues consisted of computer processing incurred primarily to provide ASP hosting services, hardware and software, travel and entertainment, and office expenses.
|
Gross Profit
As a result of the aforementioned factors, we reported a gross profit of $1,835,305 in 2014 as compared to a gross profit of $3,175,430 in 2013.
12 |
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for 2014 were $7,268,272 as compared to $5,296,113 for 2013 for an increase of $1,972,159 or 37% as compared to 2013. Selling, marketing and administrative expenses consisted of the following:
For the Year Ended December 31,
|
|||||||
2014
|
2013
|
||||||
Compensation, employee benefits and related taxes
|
$
|
4,492,640
|
$
|
2,713,072
|
|||
Advertising and other marketing
|
321,409
|
394,172
|
|||||
Depreciation
|
166,067
|
160,808
|
|||||
Rent, utilities, telephone and communications
|
378,586
|
383,204
|
|||||
Professional fees
|
901,452
|
879,438
|
|||||
Other general and administrative
|
1,008,118
|
765,419
|
|||||
$
|
7,268,272
|
$
|
5,296,113
|
|
●
|
In 2014 we incurred compensation, employee benefits and related taxes of $4,492,640 as compared to $2,713,072 in 2013, an increase of $1,779,568 or 66%. The increase is primarily the result of $1,694,400 of equity compensation expense to directors and increased staffing in the Company’s computer systems infrastructure area.
|
|
o
|
On May 22, 2014, the board of directors of the Company granted warrants to purchase 1,140,000 shares of Series B Convertible Preferred Stock at an exercise price equal to $3.00 per share to the directors of the Company. The warrants are immediately exercisable, non transferrable and expire on May 22, 2019. The Company estimated the fair value of the warrants to be $1,664,400 as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 769%, risk-free interest rate: 0.05%, expected life in years: 5, and assumed dividend yield: 0%.
|
|
o
|
On May 22, 2014, the board of the Company authorized the grant of a warrant to purchase 30,000 shares of Series B Convertible Preferred Stock at an exercise price equal to $3.00 per share to either Mr. Alan Krigstein or to Independence Blue Cross (“IBC”) or its affiliate as designated by Mr. Krigstein subject to and effective on the date of Mr. Krigstein’s designation to the Company of the recipient of the warrant (“IBC Warrant”). On August 14, 2014, the Company received Mr. Krigstein’s written notice designating the warrant to be issued to Independence Blue Cross, LLC. The Company granted the Warrant to Independence Blue Cross effective August 14, 2014. The IBC Warrant is immediately exercisable, non transferrable and will expire on May 22, 2019. The Company estimated the fair value of the IBC Warrant to be $30,000 as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 768%, risk-free interest rate: 0.06%, expected life in years: 4.8, and assumed dividend yield: 0%. As of September 30, 2014, the Company recorded $30,000 as compensation, employee benefits and related taxes.
|
13 |
|
●
|
In 2014 our professional fees increased as compared to 2013 primarily as a result of $218,780 royalty expense to an outside consulting firm partially offset by lower recruiting and sales consulting expenses. The Company and a consulting firm agreed that the consulting firm would reduce the fees that it charged the Company in 2013 for consideration of a royalty payment, which will be due if and when the Company executes up to three new InsPro EnterpriseTM license agreements with new clients to process annuity or universal life policies as part of their license agreement. The Company executed such a license agreement in the second quarter of 2014. The Company will incur royalty expense of $102,500 in the future upon the execution of each of the next two new InsPro Enterprise license agreements with clients processing annuity or universal life policies as part of their license agreements.
|
|
●
|
In 2014 our other expense increased as compared to 2013 primarily as a result of $125,146 of bad debt expense in 2014 and increased maintenance expense on computer hardware and software.
|
Operating loss from continuing operations
As a result of the aforementioned factors, we reported an operating loss from continuing operations of $5,424,247 in 2014 as compared to $2,120,683 in 2013.
Other income (expenses)
The gain on the change of the fair value of the warrant liability in 2014 and in 2013 represents the mark to market adjustments for the change in fair value of warrants, which contain provisions that adjust the exercise price of these warrants in the event we issue our common stock or other securities convertible into our common stock at a price lower than the exercise price of these warrants. The gain or loss on the change of the fair value of the warrant liability is primarily attributable to the increase in the per share price of the Company’s common stock.
Interest expense is attributable to interest on the Company’s loan with Silicon Valley Bank, capital leases and note payable for premium financing on a portion of the Company’s insurance coverages.
Income on discontinued operations
Results from discontinued operations were as follows:
For the Year ended December 31,
|
|||||||
2014
|
2013
|
||||||
Revenues:
|
|||||||
Commission and other revenue from carriers
|
$
|
28,068
|
$
|
64,823
|
|||
Transition policy commission pursuant to the Agreement
|
238,547
|
351,239
|
|||||
266,615
|
416,062
|
||||||
Operating expenses:
|
|||||||
Other general and administrative
|
27,055
|
23,895
|
|||||
27,055
|
23,895
|
||||||
Income from discontinued operations
|
$
|
239,560
|
$
|
392,167
|
14 |
For 2014 we earned revenues from discontinued operations of $266,615 as compared to $416,062 in the 2013, a decrease of $149,447 or 36%. Revenues decreased due to the declines in our discontinued telesales call center produced agency business.
As a result of the aforementioned factors, we reported income from discontinued operations of $239,560 or $0.01 gain from discontinued operations per share in 2014 as compared to $392,167 or $0.01 income from discontinued operations per share in 2013.
Net loss
As a result of the factors discussed above, we reported a net loss of $5,184,687 or $0.12 net loss per share in 2014, as compared to a net loss of $1,743,008 or $0.04 net loss per share in 2013.
The primary inflationary factor affecting our operations is labor costs and we do not believe that inflation has materially affected earnings during the past two years. Substantial increases in costs and expenses, particularly labor and operating expenses, could have a significant impact on our operating results to the extent that such increases cannot be passed along to our customers.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2014, we had a cash balance of $3,431,001 and negative working capital of $2,046,076.
Net cash provided by operations was $1,622,778 in 2014 as compared to $1,867,552 cash used in operations in 2013. Impacting our cash flow from operations was our net loss of $5,184,687 in 2014 as compared to our net loss of $1,743,008 in 2013 and:
|
●
|
Decreases in accounts receivable of $584,248 in 2014, which is primarily the result of increased collections from clients for 2014 and 2013 billings.
|
|
●
|
Increases in accounts payable of $3,664,877 in 2014, which is primarily the result of both increased current and past due balances owed to several outside IT consulting firms, which as a result of increased utilization of these firms.
|
|
●
|
Decreases in accrued liabilities of $83,445 in 2014, which is primarily the result of cash disbursement in 2014 of employee costs accrued in 2013.
|
|
●
|
Decreases in deferred revenue of $1,244,813 in 2014, which is primarily the result of license fee deposits, which were collected in 2013 and earned in 2014.
|
In addition to cash used in operating activities we incurred the following non-cash gain and expenses, which were included in our net loss, including:
|
●
|
Recorded depreciation and amortization expense of $840,741 and $697,102 in 2014 and 2013, respectively.
|
|
●
|
Recorded stock-based compensation and consulting expense of $1,777,803 and $93,834 in 2014 and 2013, respectively.
|
|
●
|
Recognized a gain on change in fair value of warrants liabilities of $51,440 in 2014 and $25,001 in 2013.
|
15 |
Net cash used by investing activities in 2014 was $576,274 as compared to $234,961 in 2013. The increase is primarily the result of the payments for additional computer hardware and software acquired as a result of increased activity of existing and new clients utilizing the Company’s hosting service for InsPro EnterpriseTM and to a lesser extent increased staffing. The aforementioned amounts exclude capital leased computer hardware and software.
Net cash used by financing activities in 2014 was $185,039 as compared to $1,324,360 of cash provided by financing activities in 2013.
|
●
|
Effective with the March 14, 2013 expiration of the subscription rights pertaining to the Company’s rights offering holders, of subscription rights exercised an aggregate of 100 basic subscription rights and 50 over subscription rights for a total 150 subscription units. The Company received $36,000 in gross proceeds as a result of the exercise of subscription units. As a result of the exercise of 150 subscription units the Company issued effective on March 14, 2013 an aggregate of 12,000 shares of the Company’s Series B Convertible Preferred Stock and five-year warrants to purchase an aggregate of 120,000 shares of the Company’s common stock at an exercise price of $0.15 per share.
|
|
●
|
On September 12, 2013 the Company entered into and completed a private placement (the “Private Placement”) with Independence Blue Cross, a Pennsylvania hospital plan corporation (the “Investor”), for an aggregate of 500,000 shares of Series B Convertible Preferred Stock, and warrants (“September 2013 Warrants”) to purchase 5,000,000 shares of common stock, pursuant to the terms of a securities purchase agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company agreed to sell to the Investor 500,000 investment units (each, a “Private Placement Unit”) in the Private Placement at a per Unit purchase price equal to $3.00. Each Private Placement Unit sold in the Private Placement consisted of one share of Series B Convertible Preferred Stock and a September 2013 Warrant to purchase ten shares of common stock at an initial exercise price of $0.15 per share, subject to adjustment. The gross proceeds from the closing of the Private Placement were $1,500,000.
|
|
●
|
We entered into notes payable to finance two of the Company’s corporate insurance premiums.
|
|
●
|
InsPro Technologies has entered into various capital lease obligations to purchase equipment used for operations.
|
Revolving Facility with Silicon Valley Bank (“SVB”)
On October 3, 2012, the Company together with InsPro Technologies and Atiam Technologies L.P. (the “Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). On December 2, 2014, the Borrowers entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) with SVB.
The Loan Agreement established a revolving credit facility for the Borrowers in the principal amount of up to $2,000,000. The Amended and Restated Loan Agreement increased the maximum amount of the Facility from $2,000,000 to $4,000,000 outstanding at any time (the “Revolving Facility”).
Availability under the facility under the Loan Agreement was tied to a borrowing base formula that was based on 80% of the Borrowers’ eligible accounts receivable, plus 20% of the aggregate unrestricted cash balance held at SVB (the “Borrowing Base”).
Under the Amended and Restated Loan Agreement the Revolving Facility is based in part on the Borrowers’ adjusted quick ratio. The adjusted quick ratio is the ratio of (x) the Borrowers’ consolidated, unrestricted cash maintained with SVB plus net unbilled accounts receivable to (y) the Borrowers’ liabilities to SVB plus, without duplication, the aggregate amount of the Borrowers’ liabilities that mature within 1 year (excluding subordinated debt), minus the current portion of deferred revenue. If the Borrowers’ adjusted quick ratio is less than 1.25:1 then the maximum amount available to borrow is based on 80% of the sum of specific, individual client accounts receivable invoices. If the Borrowers’ adjusted quick ratio equals or exceeds 1.25:1 then the maximum amount that maybe borrowed equals 80% of the Borrowers’ accounts receivable balance in aggregate subject to the eligibility criteria and reductions set forth in the Amended and Restated Loan Agreement.
16 |
Advances
under the Revolving Facility may be repaid and reborrowed in accordance with the Amended and Restated Loan Agreement. Pursuant
to the Amended and Restated Loan Agreement, the Borrowers agreed to pay to SVB the outstanding principal amount of all advances
(the “Advances”), the unpaid interest thereon, and all other obligations incurred with respect to the Amended and
Restated Loan Agreement on November 30, 2016. The Amended and Restated Loan Agreement also amended the interest that will accrue
on the unpaid principal balance of the Advances from a floating per annum rate equal to 1.00% above the prime rate to a per annum
rate equal to 1.50% above the prime rate. The Borrowers paid SVB a $20,000 facility fee in 2014 in connection with the execution
of the Amended and Restated Loan Agreement.
In connection with the Amended and Restated Loan Agreement, and in addition to certain other covenants, the Borrowers must maintain at all times adjusted EBITDA, measured cumulatively from and after April 1, 2014, of at least $250,000 as of and for the periods ending December 31, 2014, $1,500,000 as of and for the period ending March 31, 2015 and $2,000,000 as of and for the period ending June 30, 2015. The Borrowers must also maintain an adjusted EBITDA for each calendar quarter of $1,000,000 for the calendar quarter ending September 30, 2015 and for each calendar quarter thereafter. Adjusted EBITDA is earning before interest, taxes, depreciation and amortization minus unfinanced capital expenditures.
Subject to certain exceptions, the Amended and Restated Loan Agreement contains covenants prohibiting the Borrowers from, among other things: (a) conveying, selling, leasing, transferring or otherwise disposing of their properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the business currently engaged in or reasonably related thereto; (d) entering into any merger or consolidation, or acquiring all or substantially all of the capital stock or property of another entity; (e) becoming liable for any indebtedness; (f) allowing any lien or encumbrance on any of their property; (g) paying any dividends; and (h) making payments on subordinated debt.
The Borrowers’ obligations under the Amended and Restated Loan Agreement are secured by a first priority perfected security interest in substantially all of the assets of the Borrowers, excluding the intellectual property of the Borrowers. The Amended and Restated Loan Agreement contains a negative covenant prohibiting the Borrowers from granting a security interest in their intellectual property to any party.
As of December 31, 2014, the Company was not in compliance with the Amended and Restated Loan Agreement. As of December 31, 2014, the balance of the Revolving Facility was $525,000, which is included in notes payable in our balance sheet, and the Borrowing Base was $1,524,402. As of December 31, 2014 the adjusted quick ratio under the Revolving Facility was 0.96:1.00. As of December 31, 2014, the Borrowers’ adjusted EBITDA for the 9 months ended December 31, 2014, was ($3,139,735).
17 |
Loan from Co-Investment Fund II, LP.
On January 30, 2015, the Company and InsPro Technologies issued a Secured Convertible Promissory Note (“Note”) to The Co-Investment Fund II, L.P., a holder of more than 5% of our common stock on an as converted basis (“Co-Investment”), pursuant to a Secured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”). In connection with the Note Purchase Agreement, the Company, InsPro Technologies and Co-Investment entered into a Security Agreement (the “Security Agreement”, and together with the Note and the Note Purchase Agreement, the “Financing Agreements”). Pursuant to the terms and subject to the conditions set forth in the Financing Agreements, Co-Investment provided a loan in the amount of $1,000,000 (“Loan”) to the Company and InsPro Technologies, which is secured by all assets of the Company and InsPro Technologies other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (“Collateral”). Pursuant to the Secured Convertible Promissory Note (“Note”), interest in the amount of 8% per annum, calculated on a 365 or 366 day year, as the case may be, and the principal amount of $1,000,000 and accrued interest will be paid on or before June 30, 2016. Co-Investment has the right to convert principal and accrued interest into the equity securities of the Company in the event that the Company issues and sells equity securities to investors on or before the repayment in full of the Note in an equity financing resulting in gross proceeds to the Company of at least $1,000,000. In the event that the Company consummates a consolidation, merger of reorganization in which the stockholders of the Company do not hold at least a majority of the voting power of the surviving entity in substantially the same proportion immediately after such consolidation, merger or reorganization, or the Company consummates a transaction or series of related transaction in which in excess of fifty percent of the voting power is transferred, then upon notice to Co-Investment the Company shall repay the entire outstanding principal balance and all unpaid accrued interest under the Note upon the closing of such transaction. The Company and InsPro Technologies may prepay the Note at any time in whole or in part without payment of penalty or unearned interest.
Pursuant to the Security Agreement, the Company shall not, without the Co-Investment’s prior consent, sell, lease or otherwise dispose of any equipment or fixtures constituting Collateral. In addition, the Company and InsPro Technologies will furnish Co-Investment with such information and documents regarding the Collateral and their financial condition, business, assets and liabilities as is reasonably requested by Co-Investment.
In connection with the Financing Agreements, Co-Investment entered into a Subordination Agreement (“Subordination Agreement”) with SVB, the terms of such agreement were approved by the Company, InsPro Technologies and Atiam Technologies L. P. Pursuant to the Subordination Agreement, Co-Investment agreed, among other things, that all obligations under the Amended and Restated Loan Agreement and any other obligations to SVB would be senior to the outstanding indebtedness under the Financing Agreements.
On March 17, 2015, the Company received a loan from Edmond Walters, a current director of the Company, in the amount of $500,000 (the “Loan From Mr. Walters”). The Loan From Mr. Walters was a pre-payment by Mr. Walters in connection with any future issuance of equity securities of the Company, and is convertible into equity securities of the Company in connection with any such future issuance of equity securities as agreed to by the Company and Mr. Walters. The Loan From Mr. Walters is refundable to Mr. Walters on demand, without interest, if the Company does not consummate an equity financing within a time period to be determined by the Company and Mr. Walters.
On March 27, 2015, the Company and InsPro Technologies issued a second Secured Convertible Promissory Note (“The Second Note”) to Co-Investment pursuant to a second Secured Convertible Promissory Note Purchase Agreement (the “Second Note Purchase Agreement”). The terms of the Second Note are essentially identical to the terms of the Note and the terms of the Second Note Purchase Agreement are essentially identical to the terms of the Note Purchase Agreement. Co-Investment provided a second loan in the amount of $1,000,000 to the Company and InsPro Technologies.
Liquidity and Other
Considerations
During the year ended December 31, 2014, $1,622,778 of cash was provided from operations, $576,274 of cash was used to fund investing activities and $185,039 of cash was used to fund financing activities, which resulted in a net increase in cash of $861,465. Cash provided from operations during 2014 was in part the result of an approximate $3.6 million increase in accounts payable. As of December 31, 2014, the Company's shareholder deficit was $1,253,749 and approximately $2.5 million of the Company's $4,834,128 accounts payable balance was beyond 30 days old and past due. Also as of December 31, 2014, the Company was not in compliance with the Amended and Restated Loan Agreement with SVB and there can be no assurance that SVB will not require the Company to repay the $525,000 balance of the Revolving Facility.
On January 30, 2015, Co-Investment provided a loan to the Company in the amount of $1,000,000. On March 27, 2015, Co-Investment provided a second loan to the Company in the amount of $1,000,000. The Company is in the process of negotiating a private placement, which will result in the issuance of the Company's equity securities with terms similar to those of the Private Placement that occurred in 2013. Co-Investment has the right to convert the $2,000,000 loan balances into the equity securities issued by the Company in the event that the Company issues and sells equity securities to investors on or before the repayment in full of the loan balances.
Our liquidity needs for the next twelve months and beyond are principally for the funding of our operations, the purchase of property and equipment and the potential repayment of the balance of the Revolving Facility. Barring unforeseen circumstances, we anticipate being able to fund the Company's liquidity needs for the next twelve months with cash and cash equivalents balances as of December 31, 2014 combined with the loan proceeds from the two loans from Co-Investment and the proceeds from the issuance of equity securities from other investors. We believe that offerings of equity or debt securities are possible to fund expenditures for the next twelve months and beyond although such offerings may not be available to us on acceptable terms and are dependent on market conditions at such time.
18 |
Off-Balance Sheet Arrangements
We do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet or other contractually narrow or limited purposes.
19 |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Number |
||
INSPRO TECHNOLOGIES CORPORATION
|
||
Report of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated Balance Sheets at December 31, 2014 and December 31, 2013
|
F-2
|
|
Consolidated Statements of Operations for the Years Ended December 31, 2014 and December 31, 2013
|
F-3
|
|
Consolidated Statements of Changes in Shareholders’ (Deficit) Equity for the Years Ended December 31, 2014 and December 31, 2013
|
F-4
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014 and December 31, 2013
|
F-5
|
|
Notes to Consolidated Financial Statements
|
F-6 to F-35
|
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
InsPro Technologies Corporation
Radnor, Pennsylvania
We have audited the accompanying consolidated balance sheets of InsPro Technologies Corporation and Subsidiaries as of December 31, 2014 and 2013, the related consolidated statements of operations, changes in shareholders’ (deficit) equity and cash flows for each of the two years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of InsPro Technologies Corporation and Subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
|
/s/ D’Arelli Pruzansky, P.A. | ||
Certified Public Accountants
|
|||
Boca Raton, Florida | |||
March 30, 2015
|
F-2 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2014
|
December 31, 2013
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash
|
$ | 3,431,001 | $ | 2,569,536 | ||||
Accounts receivable, net
|
2,244,812 | 1,660,564 | ||||||
Prepaid expenses
|
321,228 | 200,985 | ||||||
Other current assets
|
2,796 | 2,564 | ||||||
Assets of discontinued operations
|
19,783 | 31,540 | ||||||
Total current assets
|
6,019,620 | 4,465,189 | ||||||
Property and equipment, net
|
1,104,441 | 959,902 | ||||||
Other assets
|
50,000 | 60,000 | ||||||
Total assets
|
$ | 7,174,061 | $ | 5,485,091 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Notes payable
|
$ | 549,329 | $ | 550,761 | ||||
Accounts payable
|
4,834,128 | 1,169,251 | ||||||
Accrued expenses
|
373,310 | 456,753 | ||||||
Current portion of capital lease obligations
|
182,388 | 57,932 | ||||||
Due to related parties
|
- | 10,000 | ||||||
Deferred revenue
|
2,251,688 | 1,006,875 | ||||||
Total current liabilities
|
8,190,843 | 3,251,572 | ||||||
LONG TERM LIABILITIES:
|
||||||||
Warrant liability
|
5,760 | 607,199 | ||||||
Capital lease obligations
|
231,207 | 23,184 | ||||||
Total long term liabilities
|
236,967 | 630,383 | ||||||
Total liabilities
|
8,427,810 | 3,881,955 | ||||||
SHAREHOLDERS’ (DEFICIT) EQUITY:
|
||||||||
Preferred stock ($.001 par value; 20,000,000 shares authorized)
|
||||||||
Series A convertible preferred stock; 3,437,500 shares authorized, 1,276,750 shares issued and outstanding (liquidation value $12,767,500)
|
2,864,104 | 2,864,104 | ||||||
Series B convertible preferred stock; 5,000,000 shares authorized, 3,809,378 shares issued and outstanding (liquidation value $11,428,134)
|
7,709,919 | 7,709,919 | ||||||
Common stock ($.001 par value; 400,000,000 and 300,000,000 shares authorized, 41,543,655 shares issued and outstanding)
|
41,543 | 41,543 | ||||||
Additional paid-in capital
|
45,738,974 | 43,411,172 | ||||||
Accumulated deficit
|
(57,608,289 | ) | (52,423,602 | ) | ||||
Total shareholders’ (deficit) equity
|
(1,253,749 | ) | 1,603,136 | |||||
Total liabilities and shareholders’ (deficit) equity
|
$ | 7,174,061 | $ | 5,485,091 |
See accompanying notes to audited consolidated financial statements.
F-3 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31,
|
||||||||
2014
|
2013
|
|||||||
Revenues
|
$ | 18,670,138 | $ | 14,802,268 | ||||
Cost of revenues
|
16,834,833 | 11,626,838 | ||||||
Gross profit
|
1,835,305 | 3,175,430 | ||||||
Selling, general and administrative expenses:
|
||||||||
Salaries, employee benefits and related taxes
|
4,492,640 | 2,713,072 | ||||||
Advertising and other marketing
|
321,409 | 394,172 | ||||||
Depreciation
|
166,067 | 160,808 | ||||||
Rent, utilities, telephone and communications
|
378,586 | 383,204 | ||||||
Professional fees
|
901,452 | 879,438 | ||||||
Other general and administrative
|
1,008,118 | 765,419 | ||||||
Total selling, general and administrative expenses
|
7,268,272 | 5,296,113 | ||||||
Operating loss from continuing operations
|
(5,432,967 | ) | (2,120,683 | ) | ||||
Other income (expense):
|
||||||||
Gain on the change of the fair value of warrant liability
|
51,440 | 25,001 | ||||||
Interest expense
|
(42,720 | ) | (39,493 | ) | ||||
Total other income (expense)
|
8,720 | (14,492 | ) | |||||
Loss from continuing operations
|
(5,424,247 | ) | (2,135,175 | ) | ||||
Income from discontinued operations
|
239,560 | 392,167 | ||||||
Net loss
|
$ | (5,184,687 | ) | $ | (1,743,008 | ) | ||
Net income (loss) per common share - basic and diluted:
|
||||||||
Loss from operations
|
$ | (0.13 | ) | $ | (0.05 | ) | ||
Gain from discontinued operations
|
0.01 | 0.01 | ||||||
Net loss per common share
|
$ | (0.12 | ) | $ | (0.04 | ) | ||
Weighted average common shares outstanding - basic and diluted
|
41,543,655 | 41,543,655 |
See accompanying notes to audited consolidated financial statements.
F-4 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Series A Preferred Stock,
$.001 Par Value
|
Series B Preferred Stock,
$.001 Par Value
|
Common Stock, $.001
Par Value
|
||||||||||||||||||||||||||
Number of Shares
|
Amount
|
Number of Shares
|
Amount
|
Number of Shares
|
Amount
|
Additional
Paid-in Capital |
Accumulated Deficit
|
Total Shareholders’
(Deficit) Equity |
||||||||||||||||||||
Balance - December 31, 2012
|
1,276,750
|
$
|
2,864,104
|
3,297,378
|
$
|
6,617,812
|
41,543,655
|
$
|
41,543
|
$
|
43,317,338
|
$
|
(50,680,594
|
)
|
$
|
2,160,203
|
||||||||||||
Amortization of deferred compensation
|
93,834
|
93,834
|
||||||||||||||||||||||||||
Net loss for the period
|
(1,743,008
|
)
|
(1,743,008
|
)
|
||||||||||||||||||||||||
Preferred stock and warrants issued in rights offering
|
12,000
|
7200
|
7,200
|
|||||||||||||||||||||||||
Record fair value of warrant liability pertaining to the warrants issued in rights offering
|
(7,200
|
)
|
(7,200
|
)
|
||||||||||||||||||||||||
Preferred stock and warrants issued in private placement
|
500,000
|
1,092,107
|
400,000
|
1,492,107
|
||||||||||||||||||||||||
Record fair value of warrant liability pertaining to the warrants issued in private placement
|
(400,000
|
)
|
(400,000
|
)
|
||||||||||||||||||||||||
Balance - December 31, 2013
|
1,276,750
|
2,864,104
|
3,809,378
|
7,709,919
|
41,543,655
|
41,543
|
43,411,172
|
(52,423,602
|
)
|
1,603,136
|
||||||||||||||||||
Amortization of deferred compensation
|
83,403
|
83,403
|
||||||||||||||||||||||||||
Net loss for the period
|
(5,184,687
|
)
|
(5,184,687
|
)
|
||||||||||||||||||||||||
Fair value of warrant liability whose anti-dilution provisions expired during the period
|
549,999
|
549,999
|
||||||||||||||||||||||||||
Warrants issued to directors and stockholders as compensation
|
1,694,400
|
1,694,400
|
||||||||||||||||||||||||||
Balance - December 31, 2014
|
1,276,750
|
$
|
2,864,104
|
3,809,378
|
$
|
7,709,919
|
41,543,655
|
$
|
41,543
|
$
|
45,738,974
|
$
|
(57,608,289
|
)
|
$
|
(1,253,749
|
)
|
See accompanying notes to audited consolidated financial statements.
F-5 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
|
||||||||
2014
|
2013
|
|||||||
Cash Flows From Operating Activities:
|
||||||||
Net loss
|
$ | (5,184,687 | ) | $ | (1,743,008 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation
|
840,741 | 697,102 | ||||||
Stock-based compensation
|
1,777,803 | 93,834 | ||||||
(Gain) on change of fair value of warrant liability
|
(51,440 | ) | (25,001 | ) | ||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
(584,248 | ) | 45,850 | |||||
Prepaid expenses
|
(13,163 | ) | 145,214 | |||||
Other current assets
|
(232 | ) | (841 | ) | ||||
Other assets
|
10,000 | 10,000 | ||||||
Accounts payable
|
3,664,877 | (392,152 | ) | |||||
Accrued expenses
|
(83,443 | ) | (66,571 | ) | ||||
Due to related parties
|
(10,000 | ) | 10,000 | |||||
Deferred revenue
|
1,244,813 | (673,958 | ) | |||||
Assets of discontinued operations
|
11,757 | 31,979 | ||||||
Net cash provided (used) in operating activities
|
1,622,778 | (1,867,552 | ) | |||||
Cash Flows From Investing Activities:
|
||||||||
Purchase of property and equipment
|
(576,274 | ) | (234,961 | ) | ||||
Net cash used in investing activities
|
(576,274 | ) | (234,961 | ) | ||||
Cash Flows From Financing Activities:
|
||||||||
Gross proceeds from sale of preferred stock and warrants
|
- | 1,536,000 | ||||||
Fees paid in connection with sale of preferred stock and warrants
|
- | (36,693 | ) | |||||
Payments on notes payable
|
(108,512 | ) | (110,704 | ) | ||||
Payments on capital leases
|
(76,527 | ) | (64,243 | ) | ||||
Net
cash (used) provided in financing activities
|
(185,039 | ) | 1,324,360 | |||||
Net increase (decrease) in cash
|
861,465 | (778,153 | ) | |||||
Cash - beginning of the period
|
2,569,536 | 3,347,689 | ||||||
Cash - end of the period
|
$ | 3,431,001 | $ | 2,569,536 | ||||
|
||||||||
Supplemental Disclosures of Cash Flow Information Cash payments for interest
|
$ | 42,512 | $ | 37,572 | ||||
Non cash financing activities:
|
||||||||
Accrued interest on loan payable
|
$ | 207 | $ | 1,921 | ||||
Fair value of warrant liability whose anti-dilution provisions expired during the period
|
$ |
549,999
|
$ | - |
See accompanying notes to audited consolidated financial statements.
F-6 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
InsPro Technologies Corporation (the “Company”, “ITCC”, “we”, “us” or “our”) is a technology company that provides software applications for use by insurance administrators in the insurance industry. Our business focuses primarily on our InsPro EnterpriseTM software application, which was introduced in 2004.
The Company offers InsPro Enterprise on both a licensed and an ASP (Application Service Provider) basis. InsPro Enterprise is an insurance administration and marketing system that supports group and individual business lines, and efficiently processes agent, direct market, worksite and web site generated business. InsPro Technologies’ clients include insurance carriers and third party administrators. InsPro LLC realizes revenue from the sale of software licenses, application service provider fees, hosting fees, software maintenance fees and consulting and implementation services.
Basis of presentation and principles of consolidation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries. All material inter-company balances and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates in 2014 and 2013 include the warrant liability, allowance for doubtful accounts, valuation allowance on deferred tax asset, stock-based compensation, the useful lives and valuation of property and equipment and intangible assets, and deferred revenue.
Cash and cash equivalents
The Company had no cash equilavents during the two years ended December 31, 2014. The Company considers all liquid debt instruments with original maturities of three months or less to be cash equivalents.
Accounts receivable
The Company has a policy of establishing an allowance for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. At December 31, 2014 and 2013, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amount of $125,146 and $0, respectively.
Fair value of financial instruments
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and due to related parties approximated fair value as of December 31, 2014, and December 31, 2013, because of the relatively short-term maturity of these instruments and their market interest rates.
F-7 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Effective January 1, 2008, the Company adopted FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures. See Note - 12 Fair Value Measurements.
Property and equipment
Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. In accordance with Statement of Financial Accounting Standards ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Impairment of long-lived assets
The Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Income taxes
The Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provisions of ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
F-8 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of December 31, 2014, the tax years ended December 31, 2013, 2012 and 2011 are still subject to audit.
Income (loss) per common share
Basic earnings per share is computed by dividing income (loss) from continuing operations by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the adjusted net loss from operations for diluted earnings per share by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The effects of common stock equivalents and potentially dilutive securities outstanding during 2014 and 2013 are excluded from the calculation of diluted loss per common share because it is anti-dilutive.
The Company’s common stock equivalents include the following:
December 31,
|
December 31,
|
|||||||
2014
|
2013
|
|||||||
Series A convertible preferred stock issued and outstanding
|
25,535,000 | 25,535,000 | ||||||
Series B convertible preferred stock issued and outstanding
|
76,187,560 | 76,187,560 | ||||||
Options to purchase common stock issued and outstanding
|
6,725,000 | 5,900,000 | ||||||
Warrants to purchase common stock issued and outstanding
|
45,473,780 | 72,140,447 | ||||||
Warrants to purchase series A convertible preferred stock, issued and outstanding
|
6,000,000 | 6,000,000 | ||||||
Warrants to purchase series B convertible preferred stock, issued and outstanding
|
23,400,000 | - | ||||||
183,321,340 | 185,763,007 |
Revenue recognition
InsPro Technologies offers InsPro EnterpriseTM on both a licensed and an ASP basis. An InsPro Enterprise software license entitles the purchaser a perpetual license to a copy of the InsPro Enterprise software installed at a single client location or hosted by InsPro Technologies. Alternatively, ASP hosting service enables a client to lease the InsPro Enterprise software, paying only for that capacity required to support their business. ASP and hosting clients access InsPro Enterprise installed on InsPro Technologies owned servers located at InsPro Technologies’ offices or at a third party’s site.
InsPro Technologies’ software maintenance fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and the InsPro Enterprise help desk.
F-9 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
InsPro Technologies’ consulting and implementation services are generally associated with the implementation of InsPro Enterprise for either an ASP or licensed client, and cover such activity as InsPro Enterprise installation, configuration, modification of InsPro Enterprise functionality, client insurance plan set-up, client insurance document design and system documentation. Professional services revenue also consists of post implementation activities for clients pertaining to their InsPro Enterprise installation.
InsPro Technologies’ revenue is generally recognized under Accounting Standards Codification 985-605, Software Revenue Recognition. For software arrangements involving multiple elements, which are the sale of software licenses, professional services, ASP services and maintenance services, the Company allocates revenue to each element based on the specific objective evidence of selling price of each deliverable, which is based on prices charged when the element is sold separately. Software revenue accounted for under ASC 985-605 is recognized when persuasive evidence of an arrangement exists, the software is delivered in accordance with all terms and conditions of the customer contracts, the fee is fixed or determinable and collectability is probable. Revenue related to post-contract customer support (“PCS”), including technical support and unspecified when-and-if available software upgrades, is recognized ratably over the PCS term. Under ASC 985-605, if fair value does not exist for any undelivered element, revenue is not recognized until the earlier of (i) delivery of such element or (ii) when fair value of the undelivered element is established, unless the undelivered element is a service, in which case revenue is recognized as the service is performed once the service is the only undelivered element.
Maintenance revenue is recognized ratably over the duration of the maintenance agreement term. ASP revenue is billed and earned on a monthly basis and is earned in the month that the ASP service is provided.
The Company recognizes revenue from software license agreements when persuasive evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. The Company considers fees relating to arrangements with payment terms extending beyond one year to not be fixed or determinable and revenue for these arrangements is recognized as payments become due from the customer. In software arrangements that include more than one InsPro EnterpriseTM module, the Company allocates the total arrangement fee among the modules based on the relative fair value of each of the modules.
License revenue allocated to software products generally is recognized upon delivery of the products or deferred and recognized in future periods to the extent that an arrangement includes one or more elements to be delivered at a future date and for which fair values have not been established. Revenue allocated to maintenance agreements is recognized ratably over the maintenance term and revenue allocated to training and other service elements is recognized as the services are performed.
The unearned portion of InsPro Technologies’ revenue, which is revenue collected or billed but not yet recognized as earned, has been included in the consolidated balance sheet as a liability for deferred revenue.
See Note 2 - Discontinued Operations for revenue recognition for discontinued operations.
F-10 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cost of revenues
Cost of revenues includes direct labor and associated costs for employees and independent contractors performing InsPro Enterprise design, development, implementation and testing together with customer management, training and technical support, as well as a portion of facilities costs. For the years ended December 31, 2014 and 2013, cost of revenues consisted of the following:
For the Year Ended December 31,
|
||||||||
2014
|
2013
|
|||||||
Compensation, employee benefits and related taxes
|
$ | 7,474,438 | 7,543,315 | |||||
Professional fees
|
7,592,393 | 2,754,841 | ||||||
Depreciation
|
674,674 | 536,294 | ||||||
Rent, utilities, telephone and communications
|
452,836 | 420,499 | ||||||
Other cost of revenues
|
640,492 | 371,889 | ||||||
$ | 16,834,833 | $ | 11,626,838 |
Advertising and other marketing
Advertising and other marketing costs are expensed as incurred. For the years ended December 31, 2014 and 2013, advertising and other marketing was $321,409 and $394,172, respectively.
Concentrations of credit risk
The Company maintains its cash and restricted cash in bank deposit accounts, which exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2014, the Company had $3,431,001 of cash in United States bank deposits, of which $500,043 was federally insured and $2,930,958 was not federally insured.
The following table lists the percentage of the Company’s accounts receivable balance from the Company’s InsPro EnterpriseTM clients representing 10% or more of the accounts receivable balances as of the periods listed below.
December 31, 2014
|
December 31, 2013
|
|||
2014
|
2013
|
|||
Client #1
|
16%
|
27%
|
||
Client #2
|
14%
|
18%
|
||
Client #3
|
13%
|
13%
|
||
Client #4
|
12%
|
10%
|
F-11 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The following table lists the percentage of the Company’s revenue earned from the Company’s InsPro Enterprise clients representing 10% or more of the revenue earned in each of the periods listed below.
For the Year Ended December 31,
|
||||
2014
|
2013
|
|||
Client #1
|
22%
|
27%
|
||
Client #2
|
13%
|
13%
|
||
Client #3
|
12%
|
10%
|
||
Client #4
|
11%
|
-
|
Stock-based compensation
The Company accounts for stock based compensation transactions using a fair-value-based method and recognizes compensation cost for share-based payments to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied.
Non-employee stock based compensation
The cost of stock based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied.
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.
NOTE 2 – DISCONTINUED OPERATIONS
The Company has classified its former telesales call center and external agent produced agency business as discontinued operations. During the first quarter of 2009, the Company ceased the direct marketing and sale of health and life insurance and related products to individuals and families in its Telesales call center. The Company also determined to discontinue selling health and life insurance and related products to individuals and families through its non employee agents. On February 20, 2009, the Company entered into and completed the sale of the agency business to an unaffiliated third party, pursuant to the terms of a client transition agreement.
F-12 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 2 – DISCONTINUED OPERATIONS (continued)
Revenue Recognition for Discontinued Operations
Our discontinued operations generate revenue primarily from transition policy commissions pursuant to the client transition agreement, renewal commissions paid to the Company by insurance companies based upon the insurance policies sold to consumers by the Company’s Telesales call center.
We recognize commissions and other revenue from carriers after we receive notice that the insurance carrier has received payment of the related premium. The Company recognizes as revenue commission payments received in connection with the client transition agreement upon the Company’s notification of such amounts.
The financial position of discontinued operations was as follows:
December 31, 2014
|
December 31, 2013
|
|||||||
Accounts receivable
|
$ | 19,783 | $ | 31,540 | ||||
Net current assets of discontinued operations
|
$ | 19,783 | $ | 31,540 |
The results of discontinued operations do not include any allocated or common overhead expenses. The results of operations of discontinued operations were as follows:
For the Year ended December 31,
|
||||||||
2014
|
2013
|
|||||||
Revenues:
|
||||||||
Commission and other revenue from carriers
|
$ | 28,068 | $ | 64,823 | ||||
Transition policy commission pursuant to the Agreement
|
238,547 | 351,239 | ||||||
266,615 | 416,062 | |||||||
Operating expenses:
|
||||||||
Other general and administrative
|
27,055 | 23,895 | ||||||
27,055 | 23,895 | |||||||
Income from discontinued operations
|
$ | 239,560 | $ | 392,167 |
F-13 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Useful
Life (Years) |
December 31, 2014
|
December 31, 2013
|
|||||||||
Computer equipment and software
|
3 | $ | 3,927,491 | $ | 2,952,868 | ||||||
Office equipment
|
4.6 | 148,381 | 237,629 | ||||||||
Office furniture and fixtures
|
6.7 | 189,857 | 89,951 | ||||||||
Leasehold improvements
|
5.4 | 94,620 | 94,620 | ||||||||
4,360,349 | 3,375,068 | ||||||||||
Less accumulated depreciation
|
(3,255,908 | ) | (2,415,166 | ) | |||||||
$ | 1,104,441 | $ | 959,902 |
The following table discloses depreciation expense as reported in the statement of operations.
For the Year Ended December 31,
|
||||||||
2014
|
2013
|
|||||||
Depreciation included in cost of revenues
|
$ | 674,674 | $ | 536,294 | ||||
Depreciation included in selling, general and administrative
|
166,067 | 160,808 | ||||||
Total depreciation
|
$ | 840,741 | $ | 697,102 |
NOTE 4 – NOTES PAYABLE
Notes payable consisted of the following:
December 31, 2014
|
At December 31, 2013
|
|||||||
Notes payable for insurance premium financing
|
$ | 24,329 | $ | 25,761 | ||||
Loan from Silicon Valley Bank
|
525,000 | 525,000 | ||||||
$ | 549,329 | $ | 550,761 |
On October 3, 2012, the Company together with InsPro Technologies and Atiam technologies L. P. (the “Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). On December 2, 2014, the Borrowers entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) with SVB.
The Loan Agreement established a revolving credit facility for the Borrowers in the principal amount of up to $2,000,000. The Amended and Restated Loan Agreement increased the maximum amount of the Facility from $2,000,000 to $4,000,000 outstanding at any time (the “Revolving Facility”).
F-14 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 4 – NOTES PAYABLE (continued)
Availability under the facility under the Loan Agreement was tied to a borrowing base formula that was based on 80% of the Borrowers’ eligible accounts receivable, plus 20% of the aggregate unrestricted cash balance held at SVB (the “Borrowing Base”).
Under the Amended and Restated Loan Agreement the Revolving Facility is based in part on the Borrowers’ adjusted quick ratio. The adjusted quick ratio is the ratio of (x) the Borrowers’ consolidated, unrestricted cash maintained with SVB plus net unbilled accounts receivable to (y) the Borrowers’ liabilities to SVB plus, without duplication, the aggregate amount of the Borrowers’ liabilities that mature within 1 year (excluding subordinated debt), minus the current portion of deferred revenue. If the Borrowers’ adjusted quick ratio is less than 1.25:1 then the maximum amount available to borrow is based on 80% of the sum of specific, individual client accounts receivable invoices. If the Borrowers’ adjusted quick ratio equals or exceeds 1.25:1 then the maximum amount that maybe borrowed equals 80% of the Borrowers’ accounts receivable balance in aggregate subject to the eligibility criteria and reductions set forth in the Amended and Restated Loan Agreement.
Advances under the Revolving Facility may be repaid and reborrowed in accordance with the Amended and Restated Loan Agreement. Pursuant to the Amended and Restated Loan Agreement, the Borrowers agreed to pay to SVB the outstanding principal amount of all advances (the “Advances”), the unpaid interest thereon, and all other obligations incurred with respect to the Amended and Restated Loan Agreement on November 30, 2016. The Amended and Restated Loan Agreement also amended the interest that will accrue on the unpaid principal balance of the Advances from a floating per annum rate equal to 1.00% above the prime rate to a per annum rate equal to 1.50% above the prime rate. The Borrowers paid SVB a $20,000 facility fee in 2014 in connection with the execution of the Amended and Restated Loan Agreement.
In connection with the Amended and Restated Loan Agreement, and in addition to certain other covenants, the Borrowers must maintain at all times adjusted EBITDA, measured cumulatively from and after April 1, 2014, of at least $250,000 as of and for the periods ending December 31, 2014, $1,500,000 as of and for the period ending March 31, 2015 and $2,000,000 as of and for the period ending June 30, 2015. The Borrowers must also maintain an adjusted EBITDA for each calendar quarter of $1,000,000 for the calendar quarter ending September 30, 2015 and for each calendar quarter thereafter. Adjusted EBITDA is earning before interest, taxes, depreciation and amortization minus unfinanced capital expenditures.
Subject to certain exceptions, the Amended and Restated Loan Agreement contains covenants prohibiting the Borrowers from, among other things: (a) conveying, selling, leasing, transferring or otherwise disposing of their properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the business currently engaged in or reasonably related thereto; (d) entering into any merger or consolidation, or acquiring all or substantially all of the capital stock or property of another entity; (e) becoming liable for any indebtedness; (f) allowing any lien or encumbrance on any of their property; (g) paying any dividends; and (h) making payments on subordinated debt.
The Borrowers’ obligations under the Amended and Restated Loan Agreement are secured by a first priority perfected security interest in substantially all of the assets of the Borrowers, excluding the intellectual property of the Borrowers. The Amended and Restated Loan Agreement contains a negative covenant prohibiting the Borrowers from granting a security interest in their intellectual property to any party.
As of December 31, 2014, the Company was not in compliance with the Amended and Restated Loan Agreement. As of December 31, 2014, the balance of the Revolving Facility was $525,000, which is included in notes payable in our balance sheet, and the Borrowing Base was $1,524,402. As of December 31, 2014 the Borrowers’ adjusted quick ratio under the Revolving Facility was 0.96:1.00. As of December 31, 2014, adjusted EBITDA for the year ended December 31, 2014, was ($3,139,735).
F-15 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 5 – RELATED PARTY TRANSACTIONS
On September 12, 2013, the Company entered into and completed a private placement (the “2013 Private Placement”) with Independence Blue Cross, a Pennsylvania hospital plan corporation and an accredited investor who holds more than 5% of our common stock on an as converted basis, for an aggregate of 500,000 shares of Series B Convertible Preferred Stock, and warrants to purchase 5,000,000 shares of our common stock (“September 2013 Warrants”). The Company sold to the investor 500,000 investment units at a per unit price of $3.00, for an aggregate total investment of $1,500,000, and each unit consisted of one share of Series B Convertible Preferred Stock and a warrant to purchase 10 shares of our common stock at an initial exercise price of $0.15 per share, subject to adjustment. The Company allocated $400,000 of the $1,500,000 gross proceeds received as a result of the 2013 Private Placement to the warrant liability. See “Common Stock Warrants - 2013” and Note 12 – Fair Value Measurements - Warrant Liability.
During 2013 the Company engaged Cross Atlantic Capital Partners, which is the general partner of Co-Invest Management II, L.P., which is the general partner of The Co-Investment Fund II, L.P., which is a stockholder owning more than 10% of the Company’s stock, to perform certain professoinal services in the amount of $10,000. The Co-Investment Fund II, L.P. notified the Company that it had engaged a third party to perform the services at a cost of $10,000. This $10,000 is reported in due to related parties on the Company’s balance sheet and in professional fees in selling, general and administrative expenses on the Company’s statements of operations.
See Note 12 - Subsequent Events – Loan from Co-Investment Fund II, LP.
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY
Common Stock
As of December 31, 2014 and 2013, the Company was authorized to issue 400,000,000 and 300,000,000 shares of common stock, respectively, with a par value of $0.001 per share (“Common Stock”). As of December 31, 2014 and 2013, the Company had 41,543,655 shares of its Common Stock issued and outstanding. The Company has reserved shares of Common Stock, on an as-if-converted basis, as follows:
December 31, 2014
|
December 31, 2013
|
|||||||
Exercise of options issued and outstanding to purchase common stock
|
6,725,000 | 5,900,000 | ||||||
Issuance of common shares available under the 2010 Equity Compensation Plan
|
22,271,980 | 23,096,980 | ||||||
Exercise of warrants issued and outstanding to purchase common stock
|
45,473,780 | 72,140,447 | ||||||
Conversion of series A convertible preferred stock issued and outstanding into common stock
|
25,535,000 | 25,535,000 | ||||||
Exercise of warrants to purchase series A convertible preferred stock issued and outstanding and converted into common stock
|
6,000,000 | 6,000,000 | ||||||
Conversion of series B convertible preferred stock issued and outstanding into common stock
|
76,187,560 | 76,187,560 | ||||||
Exercise of warrants to purchase series B convertible preferred stock issued and outstanding and converted into common stock
|
23,400,000 | 0 | ||||||
Total common stock reserved for issuance
|
205,593,320 | 208,859,987 |
The above table includes common stock reserved for non exercisable stock options and common stock reserved for the issuance of stock options in the future under the Company’s 2010 Equity Compensation Plan.
F-16 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
Series A Convertible Preferred Stock
As of December 31, 2014 and 2013, the Company was authorized to issue 3,437,500 shares of Series A Convertible Preferred Stock with a par value of $0.001 per share (“Series A Preferred Stock”). As of December 31, 2014 and 2013, the Company had 1,276,750 shares of its Series A Preferred Stock issued and outstanding. As of December 31, 2014 and 2013, the Company has reserved 300,000 shares of Series A Preferred Stock for the exercise of warrants issued and outstanding to purchase its Series A Preferred Stock.
The Series A Preferred Stock is entitled to vote as a single class with the holders of the Company’s common stock, with each share of Series A Preferred Stock having the right to 20 votes. Upon the liquidation, sale or merger of the Company, each share of Series A Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to two and a half (2.5) times the Series A Preferred Stock original issue price or $12,767,500, subject to certain customary adjustments, or (B) the amount such share of Series A Preferred Stock would receive if it participated pari passu with the holders of common stock on an as-converted basis. Each share of Series A Preferred Stock becomes convertible into 20 shares of common stock, subject to adjustment and at the option of the holder of the Series A Preferred Stock, immediately after shareholder approval of the Charter Amendment (as defined below). For so long as any shares of Series A Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series A Preferred Stock is required to approve (Y) any amendment to the Company’s certificate of incorporation or bylaws that would adversely alter the voting powers, preferences or special rights of the Series A Preferred Stock or (Z) any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series A Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series A Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series A Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series A Preferred Stock with an amount per share equal to two and a half (2.5) times the Series A Preferred Stock original issue price or $12,767,500 in aggregate for all issued and outstanding Series A Preferred Stock.
Series B Convertible Preferred Stock
As of December 31, 2014 and 2013, the Company was authorized to issue 5,000,000 shares of Series B Convertible Preferred Stock with a par value of $0.001 per share (“Series B Preferred Stock”). As of December 31, 2014 and 2013, the Company had 3,809,378 of its Series B Preferred Stock issued and outstanding.
F-17 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
The Series B Preferred Stock is entitled to vote as a single class with the holders of the Company’s common and preferred stock, with each share of Series B Preferred Stock having the right to 20 votes. Upon the liquidation, sale or merger of the Company, each share of Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to the Series B Preferred Stock original issue price or $11,428,137 as of December 31, 2014 and 2013, subject to certain customary adjustments, or (B) the amount such share of Series B Preferred Stock would receive if it participated pari passu with the holders of common and preferred stock on an as-converted basis. Each share of Series B Preferred Stock becomes convertible into 20 shares of common stock, subject to adjustment and at the option of the holder of the Series B Preferred Stock. For so long as any shares of Series B Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series B Preferred Stock is required to approve (Y) any amendment to the Company’s certificate of incorporation or bylaws that would adversely alter the voting powers, preferences or special rights of the Series B Preferred Stock or (Z) any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series B Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series B Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series B Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series B Preferred Stock with an amount per share equal the Series B Preferred Stock original issue price in aggregate for all issued and outstanding Series B Preferred Stock.
2013
On February 8, 2013, the Company filed a registration statement for a rights offering on Form S-1, which the Securities and Exchange Commission (the “Commission”) declared effective on February 12, 2013, to distribute to stockholders at no charge, one non-transferable subscription right for each 12,756 shares of our Common Stock and 638 shares of our preferred stock owned as of January 31, 2013, the record date, either as a holder of record or, in the case of shares held of record by brokers, dealers, custodian banks, or other nominees on stockholders’ behalf, as a beneficial owner of such shares. If the rights offering was fully subscribed the gross proceeds from the rights offering would have been $2.5 million. This rights offering was designed to give all of the holders of the Company’s capital stock the opportunity to participate in an equity investment in the Company on the same economic terms as the Company’s 2012 private placement.
The basic subscription right entitled the holder to purchase one unit (“Subscription Unit”) at a subscription price of $240 per unit. A Subscription Unit consisted of 80 shares of the Company’s Series B Preferred Stock and a five-year warrant to purchase 800 shares of the Company’s Common Stock at an exercise price of $0.15 per share. In the event that a holder of a Subscription Unit purchased all of the basic Subscription Units available to the holder then pursuant to their basic subscription right, the holder had the option to choose to subscribe for a portion of any Subscription Units that were not purchased by all other holders of Subscription Units through the exercise of their basic subscription rights.
Effective with the expiration of the subscription rights, which occurred on March 14, 2013, holders of subscription rights exercised in aggregate 100 basic subscription rights and 50 over subscription rights for a total 150 Subscription Units. The Company received $36,000 in gross proceeds as a result of the exercise of Subscription Units. As a result of the exercise of 150 Subscription Units the Company issued effective on March 14, 2013 an aggregate of 12,000 shares of Series B Preferred Stock and five-year warrants to purchase in aggregate 120,000 shares of Common Stock at an exercise price of $0.15 per share. Effective with the expiration of the subscription rights all unexercised subscription rights expired.
The warrants issued on March 14, 2013 include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per share of Common Stock during the first two years following the date of issuance of these warrants, subject to customary exceptions. As a result the Company determined that these warrants did not qualify for a scope exception under ASC 815 as they were determined to not be indexed to the Company’s stock.
F-18 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
The Company allocated $7,200 of the $36,000 gross proceeds received as a result of the rights offering to the warrant liability using a Black-Scholes option pricing model with the following assumptions: expected volatility of 711%, a risk-free interest rate of 0.10%, an expected term of 5 years and 0% dividend yield. See “Common Stock Warrants” below and Note 9 – Fair Value Measurements - Warrant Liability. The legal costs incurred as a result of the rights offering exceeded the gross proceeds. During the year ended December 31, 2013 the Company incurred $61,258 in legal costs in connection with the rights offering of which $32,458 was recorded as professional services expense and $28,800 was recorded to Series B Preferred Stock.
On September 12, 2013, the Company entered into and completed the 2013 Private Placement with Independence Blue Cross, a Pennsylvania hospital plan corporation, for an aggregate of 500,000 shares of Series B Preferred Stock, and the September 2013 Warrants, pursuant to the terms of a securities purchase agreement (the “2013 Purchase Agreement”).
Pursuant to the 2013 Purchase Agreement, the Company agreed to sell to the investor 500,000 investment units (each, a “2013 Unit”) in the 2013 Private Placement at a per 2013 Unit purchase price equal to $3.00. Each 2013 Unit sold in the 2013 Private Placement consisted of one share of Series B Preferred Stock and a September 2013 Warrant to purchase ten shares of Common Stock at an initial exercise price of $0.15 per share, subject to adjustment.
The closing of the 2013 Private Placement was subject to customary closing conditions. The gross proceeds from the closing of the 2013 Private Placement were $1,500,000. The Company incurred $7,893 in legal costs in connection with the 2013 Private Placement, which was recorded to Series B Preferred Stock.
In connection with the signing of the 2013 Purchase Agreement, the Company and the investor also entered into a registration rights agreement (the “2013 Registration Rights Agreement”). Under the terms of the 2013 Registration Rights Agreement, the Company agreed to prepare and file with the SEC, within 30 days following the receipt of a demand notice of a holder of Registrable Securities, a registration statement on Form S-1 (the “Registration Statement”) covering the resale of the shares of Series B Preferred Stock and the shares of Common Stock underlying the September 2013 Warrants issued in the 2013 Private Placement (collectively, the “Registrable Securities”). Subject to limited exceptions, the Company also agreed to use its reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as soon as practicable but, in any event, no later than 60 days following the date of the filing of the Registration Statement (or 120 days following the date of the filing of the Registration Statement in the event the Registration Statement is subject to review by the SEC), and agreed to use its reasonable best efforts to keep the Registration Statement effective under the Securities Act until the date that all of the Registrable Securities covered by the Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In addition, if the Company proposes to register any of its securities under the Securities Act in connection with the offering of such securities for cash, the Company shall, at such time, promptly give each holder of Registrable Securities notice of such intent, and such holders shall have the option to register their Registrable Securities on such additional registration statement.
The 2013 Registration Rights Agreement also provides for payment of partial damages to the investor under certain circumstances relating to failure to file or obtain or maintain effectiveness of the Registration Statement, subject to adjustment.
The 2013 Purchase Agreement also provides for a customary participation right for the investor, subject to certain exceptions and limitations, which grants the Investor the right to participate in any future capital raising financings of the Company occurring prior to November 20, 2014. The investor may participate in such financings at a level based on the investor’s ownership percentage of the Company on a fully-diluted basis prior to such financing.
F-19 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
The Company allocated $400,000 of the $1,500,000 gross proceeds received as a result of the 2013 Private Placement to the warrant liability using a Black-Scholes option pricing model with the following assumptions: expected volatility of 703%, a risk-free interest rate of 0.10%, an expected term of 5 years and 0% dividend yield. See “Common Stock Warrants” below and Note 12 – Fair Value Measurements - Warrant Liability.
Stock Options
2013
During 2013, options to purchase 680,000 shares of the Company’s Common Stock, which were previously granted to former employees of the Company, expired in accordance with the terms of such options.
On March 20, 2013, the Company granted to an executive of the Company an option to purchase a total of 150,000 shares of the Company’s Common Stock, which vests as follows: 37,500 shares of Common Stock on March 20 of each year from 2014 through 2017. This option has a five year term and an exercise price of $0.10, which is equal to the closing price of one share of the Company’s Common Stock as quoted on the OTCBB on March 20, 2013. The fair value of the option granted was estimated on the date of the grant to be $15,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 713%, risk-free interest rate: 0.07%, expected life in years: 5 based on the contract life of the option grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to this option in salaries, commission and related taxes of $3,260 in the year ended December 31, 2013.
On April 1, 2013, the Company granted to an executive of the Company an option to purchase a total of 250,000 shares of the Company’s Common Stock, which vests as follows: 62,500 shares of Common Stock on April 1 of each year from 2014 through 2017. This option has a five year term and an exercise price of $0.10, which is equal to the closing price of one share of the Company’s Common Stock as quoted on the OTCBB on April 1, 2013. The fair value of the option granted was estimated on the date of the grant to be $25,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 714%, risk-free interest rate: 0.07%, expected life in years: 5 based on the contract life of the option grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to this option in salaries, commission and related taxes of $4,689 in the year ended December 31, 2013.
2014
During 2014, options to purchase 2,775,000 shares of the Company’s Common Stock, which were previously granted to current and former employees of the Company, expired in accordance with the terms of such options.
On August 19, 2014, the Company granted to an executive of the Company an option to purchase a total of 1,800,000 shares of the Company’s Common Stock, which vests as follows: 300,000 shares of Common Stock on August 19, 2014, 300,000 shares of Common Stock on August 19, 2015, 600,000 shares of Common Stock on August 19, 2016, and 600,000 shares of Common Stock on August 19, 2017. This option has a five year term and an exercise price of $0.10 per share, which exceeded the closing price of one share of the Company’s Common Stock as quoted on the OTCBB on August 19, 2014. The fair value of the option granted was estimated on the date of the grant to be $75,600 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 753%, risk-free interest rate: 0.05%, expected life in years: 5 based on the contract life of the option grant, and assumed dividend yield: 0%.
F-20 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
On November 14, 2014, the Company granted to an executive of the Company an option to purchase a total of 1,800,000 shares of the Company’s Common Stock, which vests as follows: 300,000 shares of Common Stock on November 14, 2014, 300,000 shares of Common Stock on November 14, 2015, 600,000 shares of Common Stock on November 14, 2016, and 600,000 shares of Common Stock on November 14, 2017. This option has a five year term and an exercise price of $0.10 per share, which exceeded the closing price of one share of the Company’s Common Stock as quoted on the OTCBB on November 14, 2014. The fair value of the option granted was estimated on the date of the grant to be $117,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 789%, risk-free interest rate: 0.07%, expected life in years: 5 based on the contract life of the option grant, and assumed dividend yield: 0%.
The Company recorded compensation expense pertaining to employee stock options in salaries, commission and related taxes of $83,403 and $93,834 for the years ended December 31, 2014 and 2013, respectively.
The value of equity compensation expense not yet expensed pertaining to unvested equity compensation was $162,503 as of December 31, 2014, which will be recognized over a weighted average 2.8 years in the future.
As of December 31, 2014, there were 30,000,000 shares of our common stock authorized to be issued under the 2010 Equity Compensation Plan, of which 22,271,980 shares of our common stock remain available for future stock option grants.
A summary of the Company’s outstanding stock options as of and for the years ended December 31, 2014 and 2013 are as follows:
|
Number
|
Weighted
|
Weighted
|
|||||||||||||||||
|
Of Shares
|
Average
|
Weighted
|
Average
|
Aggregate
|
|||||||||||||||
|
Underlying
|
Exercise
|
Average
|
Remaining
|
Intrinsic
|
|||||||||||||||
Options
|
Price
|
Fair Value
|
Contractual Life
|
Value (1)
|
||||||||||||||||
(in years)
|
||||||||||||||||||||
Outstanding at December 31, 2012
|
6,180,000 | $ | 0.48 | $ | 0.34 | 1.99 | $ | - | ||||||||||||
For the year ended December 31, 2013
|
||||||||||||||||||||
Granted
|
400,000 | 0.10 | 0.10 | |||||||||||||||||
Exercised
|
- | - | - | |||||||||||||||||
Expired
|
(680,000 | ) | 0.04 | 0.04 | ||||||||||||||||
Outstanding at December 31, 2013
|
5,900,000 | $ | 0.51 | $ | 0.36 | 2.33 | $ | - | ||||||||||||
For the year ended December 31, 2014
|
||||||||||||||||||||
Granted
|
3,600,000 | 0.10 | 0.04 | |||||||||||||||||
Exercised
|
- | - | - | |||||||||||||||||
Expired
|
(2,775,000 | ) | 0.10 | 0.10 | ||||||||||||||||
Outstanding at December 31, 2014
|
6,725,000 | $ | 0.46 | $ | 0.30 | 1.66 | $ | - | ||||||||||||
Outstanding and exercisable at December 31, 2014
|
3,612,500 | $ | 0.75 | $ | 0.51 | 1.07 | $ | - |
|
(1)
|
The aggregate intrinsic value is based on the $0.048 closing price as of December 31, 2014 for the Company’s Common Stock.
|
F-21 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
The following information applies to options outstanding at December 31, 2014:
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||
Exercise Price |
Number of
Shares Underlying Options |
Weighted
Average Remaining Contractual Life |
Exercise
Price |
Number
Exercisable |
Exercise
Price |
||||||||||||||||
$ |
0.065
|
250,000 | 0.5 | $ | 0.065 | 250,000 | $ | 0.065 | |||||||||||||
0.100
|
3,750,000 | 2.4 | 0.100 | 637,500 | 0.100 | ||||||||||||||||
0.111
|
1,500,000 | 0.6 | 0.111 | 1,500,000 | 0.111 | ||||||||||||||||
1.000
|
750,000 | 0.9 | 1.000 | 750,000 | 1.000 | ||||||||||||||||
3.500
|
75,000 | 1.3 | 3.500 | 75,000 | 3.500 | ||||||||||||||||
$ |
3.600
|
400,000 | 1.3 | $ | 3.600 | 400,000 | $ | 3.600 | |||||||||||||
6,725,000 | 3,612,500 |
2013
Effective with the March 14, 2013 expiration of the subscription rights for the Company’s rights offering the Company issued on March 14, 2013, five-year warrants to purchase in aggregate 120,000 shares of Common Stock at an exercise price of $0.15 per share. These warrants also include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per share of Common Stock through March 14, 2015, subject to customary exceptions. The Company determined these warrants did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to the Company’s stock. See Note 12 – Fair Value Measurements – Warrant Liability.
The September 2013 Warrants provide that the holders thereof shall have the right at any time prior to the earlier of (i) ten business days’ after the Company has properly provided written notice to all such holders of a call event (as defined below in the Purchase Agreement) and (ii) November 20, 2017, to acquire up to a total of 5,000,000 shares of Common Stock of the Company upon the payment of $0.15 per Share (the “Exercise Price”). The Company also has the right, at any point after which the volume weighted average trading price per share of the Series B Preferred Stock for a minimum of 20 consecutive trading days is equal to at least eight times the Exercise Price per share, provided that certain other conditions have been satisfied, to call the outstanding September 2013 Warrants, in which case such September 2013 Warrants will expire if not exercised within ten business days thereafter. The September 2013 Warrants also include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per share of Common Stock until November 20, 2014, subject to customary exceptions. The Company determined the September 2013 Warrants did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to the Company’s stock. See Note 12 – Fair Value Measurements – Warrant Liability.
F-22 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
A summary of the status of the Company’s outstanding stock warrants as of and for the years ended December 31, 2014 and 2013 are as follows:
|
Weighted
|
|||||||
Common
|
Average
|
|||||||
Stock
|
Exercise
|
|||||||
Warrants
|
Price
|
|||||||
Outstanding and exercisable at December 31, 2012
|
92,020,447 | $ | 0.17 | |||||
For the year ended December 31, 2013
|
||||||||
Granted
|
5,120,000 | 0.15 | ||||||
Exercised
|
- | - | ||||||
Expired
|
(25,000,000 | ) | 0.20 | |||||
Outstanding and exercisable at December 31, 2013
|
72,140,447 | $ | 0.15 | |||||
For the year ended December 31, 2014
|
||||||||
Granted
|
- | - | ||||||
Exercised
|
- | - | ||||||
Expired
|
(26,666,667 | ) | 0.15 | |||||
Outstanding and exercisable at December 31, 2014
|
45,473,780 | $ | 0.15 |
The following information applies to warrants outstanding at December 31, 2014:
Warrant
Issue Date |
Warrant
Exercise Price |
Warrant
Expiration Date
|
Weighted
Average Remaining Life |
Anti-dilution
Provision Expiration Date |
Outstanding
Common Stock Warrants |
||||||||||
3/26/2010
|
$ | 0.15 |
3/26/2015
|
0.2 |
expired
|
7,380,000 | |||||||||
9/30/2010
|
0.15 |
9/30/2015
|
0.7 |
expired
|
18,000,010 | ||||||||||
11/29/2010
|
0.15 |
11/29/2015
|
0.9 |
expired
|
2,000,000 | ||||||||||
12/22/2010
|
0.15 |
12/22/2015
|
1.0 |
expired
|
7,973,780 | ||||||||||
11/20/2012
|
0.15 |
11/20/2017
|
2.9 |
expired
|
4,999,990 | ||||||||||
3/14/2013
|
0.15 |
3/14/2018
|
3.2 |
3/14/2015
|
120,000 | ||||||||||
9/12/2013
|
$ | 0.15 |
11/20/2017
|
2.9 |
expired
|
5,000,000 | |||||||||
45,473,780 |
Outstanding warrants at December 31, 2014, have a weighted average remaining contractual life of 1.2 years.
The Company determined the warrants issued during 2010, 2011, 2012 and 2013 did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to the Company’s stock as prescribed by ASC 815. See Note 11 Fair Value Measurements – Warrant Liability.
F-23 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
Series A Preferred Stock warrants
Outstanding preferred stock warrants to purchase the Company’s Series A Preferred Stock at December 31, 2014, have a remaining contractual life of 1.2 years. A summary of the status of the Company’s outstanding Series A Preferred Stock warrants as of and for the year ended December 31, 2014 are as follows:
|
Weighted
|
|||||||
Preferred
|
Average
|
|||||||
Stock
|
Exercise
|
|||||||
Warrants
|
Price
|
|||||||
Outstanding and exercisable at December 31, 2012
|
300,000 | $ | 4.00 | |||||
For the year ended December 31, 2013
|
||||||||
Granted
|
- | - | ||||||
Exercised
|
- | - | ||||||
Expired
|
- | - | ||||||
Outstanding and exercisable at December 31, 2013
|
300,000 | $ | 4.00 | |||||
For the year ended December 31, 2014
|
||||||||
Granted
|
- | - | ||||||
Exercised
|
- | - | ||||||
Expired
|
- | - | ||||||
Outstanding and exercisable at December 31, 2014
|
300,000 | $ | 4.00 |
On May 22, 2014, the board of directors of the Company granted warrants to purchase 1,140,000 shares of Series B Preferred Stock at an exercise price equal to $3.00 per share (the “Series B Warrants”) to the directors of the Company. Messrs. Adamsky and Caldwell assigned their warrants to The Co-Investment Fund. The Series B Warrants are immediately exercisable, non transferrable and expire on May 22, 2019.
The Company estimated the fair value of the Series B Warrants to be $1,664,400 as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 769%, risk-free interest rate: 0.05%, expected life in years: 5, and assumed dividend yield: 0%. As of December 31, 2014, the Company recorded $1,664,400 as compensation, employee benefits and related taxes.
On May 22, 2014, the board of directors of the Company authorized the grant of a warrant to purchase 30,000 shares of the Company’s Series B Convertible Preferred Stock, with a par value of $0.001 per share, at an exercise price equal to $3.00 per share (the “IBC Warrant”) to either Mr. Alan Krigstein or to Independence Blue Cross (“IBC”) or its affiliate as designated by Mr. Krigstein subject to and effective on the date of Mr. Krigstein’s designation to the Company of the recipient of such warrant. Mr. Alan Krigstein, the executive vice president and chief financial officer of Independence Hospital Indemnity Plan, Inc. (formerly named Independence Blue Cross) and Independence Blue Cross, LLC (“IBC, LLC”), was subsequently elected as a director of the Company effective June 3, 2014. On August 14, 2014, the Company received Mr. Krigstein’s written notice designating the IBC Warrant to be issued to IBC, LLC. The Company granted the Warrant to IBC, LLC effective August 14, 2014. The IBC Warrant is immediately exercisable, non transferrable and will expire on May 22, 2019.
F-24 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
The Company estimated the fair value of the IBC Warrant to be $30,000 as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 768%, risk-free interest rate: 0.06%, expected life in years: 4.8, and assumed dividend yield: 0%. As of December 31, 2014, the Company recorded $30,000 as compensation, employee benefits and related taxes.
Outstanding Series B Warrants at December 31, 2014, have a remaining contractual life of 4.4 years. A summary of the status of the Company’s outstanding Series B Warrants as of and for the period ended December 31, 2014 are as follows:
|
Weighted
|
|||||||
Preferred
|
Average
|
|||||||
Stock
|
Exercise
|
|||||||
Warrants
|
Price
|
|||||||
Outstanding and exercisable at December 31, 2013
|
- | $ | - | |||||
For the year ended December 31, 2014
|
||||||||
Granted
|
1,170,000 | 3.00 | ||||||
Exercised
|
- | - | ||||||
Expired
|
- | - | ||||||
Outstanding and exercisable at December 31, 2014
|
1,170,000 | $ | 3.00 |
Registration and Participation Rights
In connection with the Company’s acquisition of Atiam Technologies L. P., the Company and certain owners of Atiam Technologies L.P. entered into a registration rights agreement.
In connection with the Company’s 2008 private placement, the Company and the participating investors also entered into a Registration Rights Agreement (the “2008 Registration Rights Agreement”). Under the terms of the 2008 Registration Rights Agreement, the Company agreed to prepare and file with the SEC, a registration statement on Form S-1 covering the resale of the shares and the warrant shares, which was filed with the SEC on February 1, 2008 and declared effective by the SEC on April 22, 2008. Subject to limited exceptions, the Company also agreed to use its reasonable best efforts to keep the registration statement effective under the Securities Act until the date that all of the registrable securities covered by the registration statement have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i)) promulgated under the Securities Act. The 2008 Registration Rights Agreement also provides for payment of partial damages to the investors under certain circumstances relating to failure to file or obtain or maintain effectiveness of the registration statement, subject to adjustment.
F-25 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 6 – SHAREHOLDERS’ (DEFICIT) EQUITY (continued)
In connection with the Company’s 2009 private placement, the Company and the investor also entered into a Registration Rights Agreement (the “2009 Registration Rights Agreement”). Under the terms of the 2009 Registration Rights Agreement, the Company agreed to prepare and file with the SEC, within 30 days following the receipt of a demand notice of a holder of registrable securities, a registration statement on Form S-1 covering the resale of the shares and the warrant shares. Subject to limited exceptions, the Company also agreed to use its reasonable best efforts to cause the registration statement to be declared effective under the Securities Act, and to use its reasonable best efforts to keep the registration statement effective under the Securities Act until the date that all of the registrable securities covered by the registration statement have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In addition, if the Company proposes to register any of its securities under the Securities Act in connection with the offering of such securities for cash, the Company shall, at such time, promptly give each holder of registrable securities notice of such intent, and such holders shall have the option to register their registrable securities on such additional registration statement. The 2009 Registration Rights Agreement also provides for payment of partial damages to the investor under certain circumstances relating to failure to file or obtain or maintain effectiveness of the Registration Statement, subject to adjustment.
In connection with the Company’s 2010 private placement, the Company and the participating investors also entered into a Registration Rights Agreement (the “2010 Registration Rights Agreement”), which provided the investors with demand and “piggyback” registration rights on substantially the same terms as the 2009 Registration Rights Agreement.
In connection with Co-Investment’s note conversion, the Company and Co-Investment also entered into a Registration Rights Agreement (the “December 2010 Registration Rights Agreement”), in substantially the same form as the 2010 Registration Rights Agreement.
In connection with the 2012 private placement, the Company and the participating investors also entered into a Registration Rights Agreement (the “2012 Registration Rights Agreement”), in substantially the same form as the 2010 Registration Rights Agreement.
In connection with the 2013 Private Placement, the Company and the participating investor also entered into a Registration Rights Agreement, in substantially the same form as the 2010 Registration Rights Agreement.
As of December 31, 2014, the Company has not received a demand notice in connection with the 2009 Registration Rights Agreement, the 2010 Registration Rights Agreement, the December 2010 Registration Rights Agreement, the 2012 Registration Rights Agreement or the 2013 Registration Rights Agreement. At December 31, 2014, the Company does not believe that it is probable that the Company will incur a penalty in connection with the Company’s registration rights agreements. Accordingly no liability was recorded as of December 31, 2014.
F-26 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 7 – CAPITAL LEASE OBLIGATIONS
The Company’s InsPro Technologies subsidiary has entered into several capital lease obligations to purchase equipment used for operations. The Company has the option to purchase the equipment at the end of the lease agreement for one dollar. The underlying assets and related depreciation were included in the appropriate fixed asset category, and related depreciation account.
Property and equipment includes the following amounts for leases that have been capitalized as of December 31, 2014 and 2013:
December 31, 2014
|
December 31, 2013
|
||||||||||
Useful Life (Years)
|
|||||||||||
Computer equipment and software
|
3 | $ | 1,179,211 | $ | 672,027 | ||||||
Phone System
|
3 | 15,011 | 15,011 | ||||||||
1,194,222 | 687,038 | ||||||||||
Less accumulated depreciation
|
(803,353 | ) | (659,443 | ) | |||||||
$ | 390,869 | $ | 27,595 |
Future minimum payments required under capital leases at December 31, 2014 are as follows:
2015
|
$ | 196,729 | ||
2016
|
179,406 | |||
2017
|
58,673 | |||
Total future payments
|
434,808 | |||
Less amount representing interest
|
21,213 | |||
Present value of future minimum payments
|
413,595 | |||
Less current portion
|
182,388 | |||
Long-term portion
|
$ | 231,207 |
NOTE 8 – DEFINED CONTRIBUTION 401(k) PLAN
The Company implemented a 401(k) plan on January 1, 2007. Eligible employees contribute to the 401(k) plan. Employees become eligible after attaining age 19 and after 3 months of employment with the Company. The employee may become a participant of the 401(k) plan on the first day of the month following the completion of the eligibility requirements. Effective January 1, 2007 the Company implemented an elective contribution to the plan of 25% of the employee’s contribution up to 4% of the employee’s compensation (the “Contribution”). The Contributions are subject to a vesting schedule and become fully vested after one year of service, retirement, death or disability, whichever occurs first. The Company made contributions of $76,572 and $78,589 for the years ended December 31, 2014 and 2013, respectively.
NOTE 9 – OPERATING LEASES AND FUTURE COMMITMENTS
Employment and Separation Agreements
On March 31, 2008, Anthony R. Verdi, our Chief Financial Officer, was also appointed to the position of Chief Operating Officer, effective April 8, 2008. Mr. Verdi was appointed to the board on June 20, 2008, and was appointed our Principal Executive Officer on May 18, 2011.
F-27 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 9 – OPERATING LEASES AND FUTURE COMMITMENTS (continued)
Mr. Verdi’s amended and restated employment agreement automatically renewed for a one year term on March 31, 2013, and, if not terminated, will automatically renew for one year periods. His annual base salary was $225,000 per year from March 31, 2008 through May 30, 2011 and was then increased by the board of directors to $250,000 effective June 1, 2011. He is entitled to receive such bonus compensation as a majority of our board of directors may determine from time to time.
If we terminate Mr. Verdi’s employment for cause or Mr. Verdi terminates his employment agreement without good reason, Mr. Verdi will be entitled to receive (i) all accrued and unpaid salary and vacation pay through the date of termination and (ii) continued participation for one month in our benefit plans. Otherwise if we terminate Mr. Verdi’s employment or Mr. Verdi terminates his employment agreement for good reason including his permanent disability he will be entitled to receive 18 months’ base salary at the then current rate, payable in accordance with our usual practices, continued participation for 18 months in our benefit plans and payment, within a commercially reasonable time and on a prorated basis, of any bonus or other payments earned in connection with our bonus plan existing at the time of termination. In addition, if Mr. Verdi’s employment is terminated in accordance with the foregoing sentence within two months prior to, or 24 months following, a change in control (as described in the employment agreement), Mr. Verdi will be entitled to receive 18 months’ base salary at the then current rate upon the date of termination, regardless of our usual practices, and all stock options held by Mr. Verdi at the date of termination will immediately become 100% vested and all restrictions on such options will lapse.
If Mr. Verdi’s employment is terminated due to a permanent disability we may credit any such amounts against any proceeds paid to Mr. Verdi with respect to any disability policy maintained and paid for by us for Mr. Verdi’s benefit. If Mr. Verdi dies during the term of his employment agreement, the employment agreement will automatically terminate and Mr. Verdi’s estate or beneficiaries will be entitled to receive (i) three months’ base salary at the then current rate, payable in a lump sum and (ii) continued participation for one year in our benefit plans.
In connection with the InsPro Technologies acquisition, InsPro Technologies entered into three-year employment agreement with Mr. Oakes, effective October 1, 2007. On July 9, 2010, the Company and Mr. Oakes entered into an amended and restated written employment agreement. Pursuant to Mr. Oakes employment agreement, his annual base salary is $250,000 per year through September 30, 2011. Pursuant to his employment agreement on April 7, 2011, Mr. Oakes received an increase in his base compensation to $300,000 retroactive to July 1, 2010, upon InsPro LLC’s achievement of one calendar quarter of positive operating cash flow, which occurred during the calendar quarter ended March 31, 2011. Mr. Oakes is entitled to such fringe benefits as are available to other executives of the Company. Mr. Oakes employment agreement was automatically extended for an additional one year term on March 25, 2013 and will annually extend thereafter unless either party provides written notification to the other party of non-renewal no later than 60 days prior to the termination date of the agreement.
In the event of Mr. Oakes’s termination without cause or for good reason, he or his estate would receive his then current base annual salary, plus unpaid accrued employee benefits, which is primarily accrued vacation, plus the continuation of his employee benefits for a period of 12 months, less all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.
F-28 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 9 – OPERATING LEASES AND FUTURE COMMITMENTS (continued)
Pursuant to a written employment agreement with InsPro Technologies Mr. Michael Mullin served as InsPro Technologies’ Chief Operating Officer from June 20, 2011 through December 29, 2013. His employment agreement automatically renewed for a one year term on June 20, 2013. Pursuant to his employment agreement, his annual base salary was $220,000 per year plus a $1,000 per month benefits allowance paid each month that he was not a participant in the Company’s health insurance plans offer to executives and such fringe benefits as are available to other executives of the Company. Pursuant to his written offer of employment Mr. Mullin was entitled to variable incentive cash compensation each calendar quarter amounting to 100% of InsPro Technologies’ positive cash flow up to a maximum of $12,500 per calendar quarter.
On November 29, 2013, we agreed to a Separation of Employment and General Release Agreement with Mr. Mullin, whereby we and Mr. Mullin mutually agreed that Mr. Mullin’s employment terminated effective December 29, 2013, which we refer to as the separation date. Under the terms of this agreement, we agreed to continue to pay Mr. Mullin his current monthly base salary of $18,333 for a period of six (6) months after the separation date, less applicable tax withholding, which amount will be paid in equal monthly installments in accordance with our normal payroll practices. Any unvested stock option grants held by Mr. Mullin as of the separation date were forfeited. All vested stock option grants held by Mr. Mullin as of the separation date will expire in accordance with their original expiration term.
During 2013 the Company entered into an employment agreement with an executive, and during 2014 the employment agreements automatically renewed with this employee and three other executives each for a one year term. Also during 2014 the Company entered into an employment agreement with another executive. These employment agreements provide that these five executives will be compensated at an aggregate annual base salary of $912,500 with bonus compensation at the discretion of the Company’s board. These agreements may be terminated by the Company for “cause” (as such term is defined in the agreements) and without “cause” upon 30 days notice. These agreements may be terminated by the Company without “cause”, in which case the terminated employee will be entitled to their base salary for a period of six months. As of December 31, 2014 the aggregate base salary for these five executives was $975,000. In the event of termination without cause or for good reason, these five executives would receive their then current base annual salary for a period of six months, plus unpaid accrued employee benefits, which is primarily accrued vacation, less all applicable taxes. In the event of the voluntary termination of any of these five executives’, death or disability, they or their estate would receive unpaid accrued employee benefits, less all applicable taxes. These agreements also contain non-competition and non-solicitation provisions for the duration of the agreements plus a period of six months after termination of employment.
Operating Leases
On July 7, 2006, the Company entered into a lease agreement with Radnor Properties-SDC, L.P. (the “Landlord”) for the lease of 7,414 square feet of office space located in Radnor Financial Center, Building B, 150 Radnor-Chester Road, Radnor, Pennsylvania. The term of the lease commenced on November 1, 2006, which was the date the Company, with the Landlord’s prior consent, assumed possession of the premises and the date the Landlord tendered possession of the premises to the Company following the substantial completion of the improvements required to be made by the Landlord under the lease agreement, and will expire on the last day of the 125th month following the commencement of the lease term. The annual rent increases every 12 months, starting at approximately $161,592 plus a proportionate share of the Landlord’s building expenses after the second month and ending at approximately $258,378 plus a proportionate share of the Landlord’s building expenses. Under the terms of the lease agreement, rent is waived for the first five months of the lease term with respect to 5,238 square feet and for the first twelve months for the remaining 2,176 square feet. The Company recorded a liability for deferred rent in the amount of $62,518 as of December 31, 2014, which is included in accrued liabilities on the consolidated balance sheet.
F-29 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 9 – OPERATING LEASES AND FUTURE COMMITMENTS (continued)
The Company paid the Landlord a security deposit of $110,000 under the lease (the “Security Deposit”) during the third quarter of 2006, which is accounted for as a deposit in other assets. The Company will not earn interest on the Security Deposit. The Security Deposit will decrease and the Landlord will return to the Company $10,000 on the third anniversary of the commencement date of the lease and on each anniversary thereafter until the required Security Deposit has been reduced to $20,000. The Security Deposit will be returned to the Company 30 days after the end of the lease provided the Company has complied with all provisions of the lease. The balance of the Security Deposit is $50,000 as of December 31, 2014.
On September 14, 2007, InsPro Technologies entered into a lease agreement with BPG Officer VI Baldwin Tower L.P. (“BPG”) for approximately 5,524 square feet of office space at Baldwin Towers in Eddystone, Pennsylvania. On March 26, 2008, and again on December 2, 2008, the Company and BPG agreed to amend the lease to increase the leased office space by 1,301 and 6,810 square feet, respectively (the “BPG Lease”). The term of the lease commenced on October 1, 2007 will expire on January 31, 2013. The annual rent increases every 12 months, starting at approximately $102,194 plus a proportionate share of landlord’s building expenses and ending at approximately $286,335 plus a proportionate share of landlord’s building expenses.
On March 15, 2012, InsPro Technologies and BPG agreed to amend the BPG Lease to extend its term to January 31, 2017, and after BPG completes certain building improvements InsPro Technologies will move from its current location to another floor of the same building and lease 17,567 square feet of furnished office space from BPG. InsPro Technologies’ monthly rent shall be $24,887 per month commencing with InsPro Technologies’ occupancy of the new office space, which occurred in June 2012 through January 31, 2013. InsPro Technologies’ monthly rent will increase to $25,619 per month February 1, 2013 through January 31, 2014, increase to $26,351 per month February 1, 2014 through January 31, 2015, increase to $27,082 per month February 1, 2015 through January 31, 2016, and finally increase to $27,814 per month through February 1, 2016 through January 31, 2017.
The Company leases certain real and personal property under non-cancelable operating leases. Rent expense was $573,983 and $584,518 for the years ended December 31, 2014 and 2013, respectively.
Future minimum payments required under operating leases, severance and employment agreements and service agreements at December 31, 2014 are as follows:
2015
|
$ | 807,814 | ||
2016
|
820,302 | |||
2017
|
208,268 | |||
2018
|
852 | |||
thereafter
|
- | |||
Total
|
$ | 1,837,236 |
F-30 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 10 - INCOME TAXES
The Company has net operating loss carry forwards for federal income tax purposes of approximately $45,500,000 at December 31, 2014, the unused portion of which expires in years 2025 through 2034. The Company accounts for income taxes under Accounting Standards Codification 740, Income Taxes “ASC 740”. ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Internal Revenue Code Section 382 “IRC 382” places a limitation on the amount of taxable income that can be offset by carry forwards after a change in control (generally greater than a 50% change in ownership). The issuance of the Company’s Series A Preferred Stock on January 15, 2009 resulted in a change of control as defined under IRC 382.
The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for the periods ended December 31, 2014 and 2013:
2014
|
2013
|
|||||||
Computed “expected” expense (benefit)
|
$ | (1,770,839 | ) | $ | (610,053 | ) | ||
State tax expense (benefit), net of federal effect
|
(151,786 | ) | (52,290 | ) | ||||
Amortization/impairment of acquisition related assets
|
(5,002 | ) | (5,002 | ) | ||||
Stock based compensation
|
675,565 | 35,657 | ||||||
(Gain) loss on change in fair value of warrants
|
(19,547 | ) | (9,500 | ) | ||||
Other permanent differences
|
9,646 | 4,461 | ||||||
Increase in valuation allowance
|
1,261,963 | 636,727 | ||||||
$ | - | $ | - |
Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. The components of the net deferred tax assets for the years ended December 31, 2014 and 2013 were as follows:
2014
|
2013
|
|||||||
Deferred tax assets:
|
||||||||
Net operating loss carry forward
|
$ | 17,237,156 | $ | 15,997,952 | ||||
Depreciation
|
51,197 | 49,051 | ||||||
Compensation expense
|
45,684 | 71,585 | ||||||
Deferred revenue
|
54,842 | - | ||||||
All Miscellaneous Other
|
23,756 | 32,084 | ||||||
Total deferred tax asset
|
17,412,635 | 16,150,672 | ||||||
Deferred tax liabilities
|
- | - | ||||||
Net deferred tax asset
|
17,412,635 | 16,150,672 | ||||||
Less: valuation allowance
|
(17,412,635 | ) | (16,150,672 | ) | ||||
$ | - | $ | - |
F-31 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 10 - INCOME TAXES (continued)
The Company has fully reserved the deferred tax asset in excess of the deferred tax liabilities due to the limitation on taxable income that can be offset by net operating loss carry forwards in future periods under IRC section 382 as a result of changes in control and substantial uncertainty of the realization of any tax assets in future periods. The valuation allowance was increased by $1,261,963 from the prior year.
NOTE 11 – FAIR VALUE MEASUREMENTS
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1:
|
Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
|
Level 2:
|
Observable market-based inputs or unobservable inputs that are corroborated by market data.
|
Level 3:
|
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The following tables provide a summary of the fair values of the Company’s assets and liabilities.
As of December 31, 2014
|
||||||||||||||||
Fair Value Measurements Using
|
Liabilities at
|
|||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
LIABILITIES:
|
||||||||||||||||
Warrant liability
|
$ | - | $ | - | $ | 5,760 | $ | 5,760 | ||||||||
Total liabilities
|
$ | - | $ | - | $ | 5,760 | $ | 5,760 | ||||||||
As of December 31, 2013
|
||||||||||||||||
Fair Value Measurements Using
|
Liabilities at
|
|||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
LIABILITIES:
|
||||||||||||||||
Warrant liability
|
$ | - | $ | - | $ | 607,199 | $ | 607,199 | ||||||||
Total liabilities
|
$ | - | $ | - | $ | 607,199 | $ | 607,199 |
Warrant liability
The Company issued warrants, which contain certain anti-dilution provisions that reduce the exercise price of the warrants in certain circumstances. See Note 6 – Shareholders (Deficit) Equity - Common Stock Warrants. The Company has classified the warrant liability as noncurrent based on an evaluation of the contractual obligations of the warrants and management’s expectation as to the settlement date of the warrant liability. The Company measured its warrant liability using Level 3 inputs as defined by ASC 820.
F-32 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 11 – FAIR VALUE MEASUREMENTS (continued)
Upon the Company’s adoption of the Derivative and Hedging Topic of the FASB Accounting Standards Codification (“ASC 815”) on January 1, 2009, the Company determined that the warrants with provisions that reduce the exercise price of the warrants did not qualify for a scope exception under ASC 815 as they were determined to not be indexed to the Company’s stock as prescribed by ASC 815.
The Company determined the fair value of the warrant liability at December 31, 2012 was $225,000. The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions: dividend yield: 0%, risk free rate: 0.02% and the following:
Warrant Issue Date
|
Warrant
Exercise Price |
Aggregate
Number of Warrants |
Expected Term
(Years) of Warrants |
Volatility
|
Fair Value
|
|||||||||||||||
11/20/2012
|
$ | 0.15 | 4,999,990 | 4.9 | 689% | $ | 225,000 |
The Company determined that the fair value of the warrant liability for warrants issued on March 14, 2013 to be $7,200 in the aggregate. The fair value of the warrant liability for warrants issued on March 14, 2013 was determined on the date of their issuance, which was recorded in warrant liability, using the Black Scholes Option Pricing Model based on an expected term of five years, an assumed dividend yield of 0% and the following assumptions:
Warrant Issue Date
|
Warrant
Exercise Price |
Common
Stock Closing Price |
Aggregate
Number of Warrants |
Expected Term
(Years) of Warrants |
Volatility
|
Fair Value
|
||||||||||||||||||
3/14/2013
|
$ | 0.15 | $ | 0.06 | 120,000 | 5.0 | 711% | $ | 7,200 |
The Company determined that the fair value of the warrant liability for the September 2013 Warrants to be $400,000 in the aggregate. The fair value of the warrant liability for the September 2013 Warrants issued on September 12, 2013 was determined on the date of their issuance, which was recorded in warrant liability, using the Black Scholes Option Pricing Model based on an expected term of five years, an assumed dividend yield of 0% and the following assumptions:
Warrant Issue Date
|
Warrant
Exercise Price |
Common
Stock Closing Price |
Aggregate
Number of Warrants |
Expected Term
(Years) of Warrants |
Volatility
|
Fair Value
|
||||||||||||||||||
9/12/2013
|
$ | 0.15 | $ | 0.08 | 5,000,000 | 4.2 | 703% | $ | 400,000 |
F-33 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 11 – FAIR VALUE MEASUREMENTS (Continued)
The Company determined the fair value of the warrant liability at December 31, 2013 was $607,199. The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions: common stock closing price of $0.06 per share as of December 31, 2013, dividend yield: 0%, risk free rate: 0.1% and the following:
Warrant Issue Date
|
Warrant
Exercise Price |
Aggregate
Number of Warrants |
Expected Term
(Years) of Warrants |
Volatility
|
Fair Value
|
|||||||||||||||
11/20/2012
|
$ | 0.15 | 4,999,990 | 3.9 | 710% | $ | 299,999 | |||||||||||||
3/14/2013
|
$ | 0.15 | 120,000 | 4.2 | 716% | $ | 7,200 | |||||||||||||
9/12/2013
|
$ | 0.15 | 5,000,000 | 3.9 | 711% | $ | 300,000 | |||||||||||||
$ | 607,199 |
The following table presents a reconciliation of the warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2013:
Warrant liability balance as of December 31, 2012
|
$ | 225,000 | ||
Fair value of warrants issued during the period
|
407,200 | |||
Decrease in the fair value of warrant liability, included in net loss
|
(25,001 | ) | ||
Warrant liability balance as of December 31, 2013
|
$ | 607,199 |
The Company determined the fair value of the warrant liability at December 31, 2014 was $5,760. The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions: common stock closing price of $0.048 per share as of December 31, 2014, dividend yield: 0%, risk free rate: 0.03% and the following:
Warrant Issue Date
|
Warrant
Exercise Price |
Aggregate
Number of Warrants |
Expected Term
(Years) of Warrants |
Volatility
|
Fair Value
|
|||||||||||||||
3/14/2013
|
$ | 0.15 | 120,000 | 3.2 | 614% | 5,760 | ||||||||||||||
$ | 5,760 |
The following table presents a reconciliation of the warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2014:
Warrant liability balance as of December 31, 2013
|
$ | 607,199 | ||
Fair value of warrants whose anti-dilution provisions expired during the period
|
(549,999 | ) | ||
Decrease in the fair value of warrant liability, included in net loss
|
(51,440 | ) | ||
Warrant liability balance as of December 31, 2014
|
$ | 5,760 |
F-34 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 12 – SUBSEQUENT EVENTS
On March 26, 2015, warrants to purchase 7,380,000 shares of the Company’s Common Stock at an exercise price of $0.15 per share expired in accordance with the terms of the warrants.
Loan from Co-Investment Fund II, LP.
On January 30, 2015, the Company and InsPro Technologies issued a Secured Convertible Promissory Note (“Note”) to The Co-Investment Fund II, L.P., a holder of more than 5% of our common stock on an as converted basis (“Co-Investment”), pursuant to a Secured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”). In connection with the Note Purchase Agreement, the Company, InsPro Technologies and Co-Investment entered into a Security Agreement (the “Security Agreement”, and together with the Note and the Note Purchase Agreement, the “Financing Agreements”). Pursuant to the terms and subject to the conditions set forth in the Financing Agreements, Co-Investment provided a loan in the amount of $1,000,000 (“Loan”) to the Company and InsPro Technologies, which is secured by all assets of the Company and InsPro Technologies other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (“Collateral”). Pursuant to the Secured Convertible Promissory Note (“Note”), interest in the amount of 8% per annum, calculated on a 365 or 366 day year, as the case may be, and the principal amount of $1,000,000 and accrued interest will be paid on or before June 30, 2016. Co-Investment has the right to convert principal and accrued interest into the equity securities of the Company in the event that the Company issues and sells equity securities to investors on or before the repayment in full of the Note in an equity financing resulting in gross proceeds to the Company of at least $1,000,000. In the event that the Company consummates a consolidation, merger of reorganization in which the stockholders of the Company do not hold at least a majority of the voting power of the surviving entity in substantially the same proportion immediately after such consolidation, merger or reorganization, or the Company consummates a transaction or series of related transaction in which in excess of fifty percent of the voting power is transferred, then upon notice to Co-Investment the Company shall repay the entire outstanding principal balance and all unpaid accrued interest under the Note upon the closing of such transaction. The Company and InsPro Technologies may prepay the Note at any time in whole or in part without payment of penalty or unearned interest.
Pursuant to the Security Agreement, the Company shall not, without the Co-Investment’s prior consent, sell, lease or otherwise dispose of any equipment or fixtures constituting Collateral. In addition, the Company and InsPro Technologies will furnish Co-Investment with such information and documents regarding the Collateral and their financial condition, business, assets and liabilities as is reasonably requested by Co-Investment.
F-35 |
INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014 and 2013
NOTE 12 – SUBSEQUENT EVENTS (continued)
In connection with the Financing Agreements, Co-Investment entered into a Subordination Agreement (“Subordination Agreement”) with SVB, the terms of such agreement were approved by the Company, InsPro Technologies and Atiam Technologies L.P. Pursuant to the Subordination Agreement, Co-Investment agreed, among other things, that all obligations under the Amended and Restated Loan Agreement and any other obligations to SVB would be senior to the outstanding indebtedness under the Financing Agreements.
On March 27, 2015, the Company and InsPro Technologies issued a second Secured Convertible Promissory Note (“The Second Note”) to Co-Investment pursuant to a second Secured Convertible Promissory Note Purchase Agreement (the “Second Note Purchase Agreement”). The terms of the Second Note are essentially identical to the terms of the Note and the terms of the Second Note Purchase Agreement are essentially identical to the terms of the Note Purchase Agreement. Co-Investment provided a second loan in the amount of $1,000,000 to the Company and InsPro Technologies.
Loan From Edmond Walters
On March 17, 2015, the Company received a loan from Edmond Walters, a current director of the Company, in the amount of $500,000 (the “Loan From Mr. Walters”). The Loan From Mr. Walters was a pre-payment by Mr. Walters in connection with any future issuance of equity securities of the Company, and is convertible into equity securities of the Company in connection with any such future issuance of equity securities as agreed to by the Company and Mr. Walters. The Loan From Mr. Walters is refundable to Mr. Walters on demand, without interest, if the Company does not consummate an equity financing within a time period to be determined by the Company and Mr. Walters.
F-36 |
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
NONE
ITEM 9A.
|
CONTROLS AND PROCEDURES. |
Disclosure Controls and Procedures.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Under the supervision of our Principal Officer and Chief Financial Officer, our management conducted an assessment of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that assessment, the Principal Executive Officer and Chief Financial Officer has concluded that our disclosure controls and procedures were effective for their intended purposes as of December 31, 2014.
Internal Control over Financial Reporting.
The Company’s internal control over financial reporting is a process to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and is accumulated and communicated to management, including the Company’s principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required recording and disclosure.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As of December 31, 2014 management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on that assessment, our Principal Executive Officer and Chief Financial Officer has concluded that our internal control over financial reporting was effective as of December 31, 2014.
Changes in internal control over financial reporting.
There have not been any changes in the Company’s internal control over financial reporting during the Company’s last fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B.
|
OTHER INFORMATION. |
NONE.
54 |
PART III
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
Directors of the Registrant
Brian K. Adamsky, 54, has served as one of our directors since August, 2012. Mr. Adamsky has worked at Cross Atlantic Capital Partners, Inc. since its inception in 1999, and presently serves as its Secretary/Treasurer and Chief Financial Officer. During his years at Cross Atlantic, he has served as a director at numerous of its portfolio companies including Profectus BioSciences, Inc. and Rubicon Technology, Inc. From 1996 to 1999, Mr. Adamsky was Chief Financial Officer at Megasystems, Inc., a portfolio company of Safeguard Scientifics, Inc. Prior to Megasystems, Mr. Adamsky worked in a variety of financial and operational roles at companies in the Philadelphia region. Mr. Adamsky worked in public accounting at Touche Ross & Company (now Deloitte & Touche) and is a Certified Public Accountant in the Commonwealth of Pennsylvania. Mr. Adamsky’s experience serving as a director and officer of numerous companies qualifies him to be a member of our board of directors.
Michael Azeez, 57, has served as one of our directors since December, 2011. Mr. Azeez is a managing member of Azeez Investors, LLC. Mr. Azeez co-founded Unitel in 1988 and served its President from 1988 until 2002. Mr. Azeez served in various executive positions at American Cellular Network Corporation from 1982 until 1988 and his positions included Vice President, General Manager of various divisions and as assistant to the President. Mr. Azeez is a member of the board of directors of Acrometis Strategic Software Services, which provides software solutions to insurance companies for workers compensation claims management. Mr. Azeez is a member of the board of directors of the Friends of Yemin Orde. Mr. Azeez is the Chairman and founder of the Sam Azeez Museum of Woodbine Heritage. Mr. Azeez’s significant executive and business development experience in the telecommunications industry and his civic service for various non-profit organizations qualifies him to be a member of our board of directors.
Donald R. Caldwell, 68, has served as one of our directors and as one of the Co-Chairman of our board of directors from April 2008 through November 24, 2009, as our Chairman since November 24, 2009 and as our Chief Executive Officer and Chairman since January 26, 2015. Mr. Caldwell founded Cross Atlantic Capital Partners, Inc. in 1999, and presently serves as its Chairman and Chief Executive Officer. He has served as a director at Rubicon Technology, Inc. since 2001 where he chairs the Compensation Committee; and at Diamond Management & Technology Consultants, Inc. (NASDAQ) from 1994 until its sale to PriceWaterhouse in 2010, and where he served as a member of their Compensation Committee, Audit Committee and as the lead Director since 2006. Mr. Caldwell is a director and a member of the Compensation and Audit Committees and Chairman of the Executive Committee of Quaker Chemical Corporation (NYSE), and a member of the Compensation Committee and the board of Voxware, Inc. , a supplier of voice driven solutions. Mr. Caldwell has been a director, Chairman of the Audit Committee and member of the compensation committee of Lighting Gaming, Inc. since 2005. Mr. Caldwell has been a director of Amber Road, Inc. (NYSE: AMBR) and serves on the Nominating and Governance Committee and Compensation Committee since 2005. Mr. Caldwell has been a director and member of the audit committee of Fox Chase Bancorp, Inc. (Nasdaq: FXCB), a stock holding company of Fox Chase Bank, since October of 2014. Mr. Caldwell was a director of Kanbay International, Inc. from 1999 through 2007 when it was purchased by Capgemini. From 1996 to 1999, Mr. Caldwell was President and Chief Operating Officer and a director of Safeguard Scientifics, Inc. Mr. Caldwell was a Certified Public Accountant in the State of New York. Mr. Caldwell’s experience serving as a director and officer of numerous public companies qualifies him to be a member of our board of directors.
John Harrison, 71, has served as one of our directors since November 2005. He is a founding Partner and Executive Director of The Keystone Equities Group, Inc., a full service investment banking group and a registered NASD broker-dealer founded in 2003. Mr. Harrison also is a Managing Director of Covenant Partners, a hedge fund that invests in direct marketing services companies. In 1999, Mr. Harrison became a founding Partner of Emerging Growth Equities, Ltd., a full service investment banking and brokerage firm focused on raising capital for emerging technology companies addressing high-growth industry sectors. From 1985 to 2000, Mr. Harrison served as President of DiMark, a direct marketing agency that was subsequently acquired by Harte-Hanks in 1996. He also has held senior management positions with CUNA Mutual, RLI Insurance and CNA Insurance where he directed their direct marketing practice. Mr. Harrison was Chairman of Professional Insurance Marketing Association (PIMA) and Chairman of the DMA Financial Services Council. Mr. Harrison’s extensive experience in the financial and insurance sectors qualifies him to be a member of our board of directors.
55 |
Kenneth M. Harvey, 53, has served as a director since May 2014. Mr. Harvey has served as a director of Amber Road, Inc. (NYSE: AMBR), a provider of cloud-based global trade management solutions, since 2008. From 1989 until 2011, Mr. Harvey was employed by HSBC—Global Bank, serving as chief information officer/chief operating officer from 2008 to 2011 and as group general manager and chief information officer from 2004 to 2007. He was president of HSBC Technology and Services, a wholly-owned subsidiary of HSBC, from 2003 to 2004. Beginning in 2011, Mr. Harvey has been self-employed as a consultant. Since 2012, Mr. Harvey has also served as director of CLS Group Holdings AG, where he is a member of the chairman’s committee, which covers compensation and compliance issues, and chairman of the technology and operations committee. Mr. Harvey also served as director of CLS Bank International since 2011, and served as a director of Kanbay, Inc. from 2004 until 2007 and Vertical Networks, Inc. from 2002 until 2004. Mr. Harvey’s experience as an executive in the information technology field qualifies him to be a member of our board of directors.
Alan Krigstein, 62, has served as a director since June 2014. Mr. Krigstein is currently the Executive Vice President and Chief Financial Officer of Independence Blue Cross, a health insurer organization and independent licensee of the Blue Cross and Blue Shield Association, since 2009. Mr. Krigstein previously served as Senior Vice President and Chief Financial Officer of AmeriHealth Mercy Family of Companies from 1994 to 2009. Mr. Krigstein also serves as trustee and member of the audit committee of Plan Investment Fund, Inc., a mutual fund company that is open only to members and licensees of the Blue Cross and Blue Shield Association and certain related organizations, from 2011 to the present. Mr. Krigstein’s experience as an executive in the health insurance field qualifies him to be a member of our board of directors.
Robert J. Oakes, 56, has served as one of our directors since August 2008. He has served as the President and CEO of our InsPro Technologies, LLC subsidiary since our acquisition of the subsidiary on October 1, 2007 through January 26, 2015 and as our Vice Chairman since January 26, 2015. From 1986 until 2007 Mr. Oakes was President and Chief Executive Officer of the general partner of Atiam Technologies L.P. (now known as InsPro Technologies, LLC), a software development and servicing company that developed, expanded and serviced products to serve the insurance and financial services markets. Mr. Oakes founded InsPro Technologies under the name “Atiam” in 1986 and led the company’s effort to design and develop its flagship product, InsPro Enterprise. InsPro Enterprise is a state-of-the-art Insurance, Marketing, Administration and Claim System that provides end-to-end insurance processing, technology and support, for a broad range of life, health and disability products. Mr. Oakes’ experience in the development of our flagship product and his management of InsPro Technologies, LLC through January 26, 2015, qualifies him to be a member of our board of directors.
Sanford
Rich, 57, has served as one of our directors since April 2006. Mr. Rich is currently the Chief of Negotiations and
Restructuring at the Pension Benefit Guaranty Corporation, a U.S. government agency, and has been in that position since
November 2012. He is a director and the Audit Committee Chairman at Aspen Group Inc., an online for profit university. Mr.
Rich served as director and Chief Executive Officer at In the Car, LLC from October 2011 to November 2012. Mr. Rich was a
FINRA Registered Managing Director with Whitemarsh Capital Advisors LLC, a broker-dealer, from February 2009 through December
2014. Mr. Rich served as a director, audit committee chairman and SEC qualified audit committee financial expert of Interclick,
Inc. from 2007 to 2010. From 1995 to May 2008, Mr. Rich was director, Senior Vice President and Portfolio Manager at
GEM Capital Management Inc. From 1993 to 1995, Mr. Rich was a Managing Director of High Yield Finance, Capital Markets
& North American Loan Syndicate, Sales and Trading at Citicorp Securities. From 1985 to 1993, he served as Managing
Director of Debt Capital Markets at Merrill Lynch. From 1978 to 1985, Mr. Rich held various Analyst positions in numerous
companies, including Cypress Capital Management, Inc. (Vice President and Analyst from 1983 to 1985), FIAMCO (Distressed/High
Yield Bond Analyst from 1981 to 1983), Progressive Corporation (Financial Analyst from 1980 to 1981) and Prescott, Ball
and Turben (Distressed/High Yield Bond Analyst from 1978 to 1980). Mr. Rich’s 30+ years of experience in the
financial sector qualifies him to be a member of our board of directors.
56 |
L.J. Rowell, 82, has served as one of our directors since April 2006. He is a past President (1984-1996), Chief Executive Officer (1991-1996) and Chairman of the Board (1993-1996) of Provident Mutual Life Insurance Company, where he also held various other executive and committee positions from 1980 until his retirement in 1996. Mr. Rowell served on the board of directors of the PMA Group from 1992 until 2009. Mr. Rowell served on the board of directors of the Southeast Pennsylvania Chapter of the American Red Cross, the American College, The Foundation at Paoli, and The Milton S. Hershey Medical Center. Mr. Rowell also has served on the Board of Trustees of The Pennsylvania State University as a business and industry trustee since 1992. In 1991, he served as the Chairman of the Major Business Division for the United Way of Southeastern Pennsylvania. Mr. Rowell also has served as Chairman of The American Red Cross Ad Blood Campaign and has previously served on its Major Contributions Donor Campaign. Mr. Rowell’s extensive experience in the health insurance industry and his civic service for various health care organizations qualifies him to be a member of our board of directors.
Paul
Soltoff, 60, has served as one of our directors since November 2005. He is currently Managing Partner of RobPet, LLC
since 2015. He served as Chairman and Chief Executive Officer of Acquirgy, Inc. from 2009 to 2014. He served as Chairman and
Chief Executive Officer of SendTec, Inc. from its inception in February 2000 through 2009. From 1997 until February 2000,
Mr. Soltoff served as Chief Executive Officer of Soltoff Direct Corporation, a specialized direct marketing consulting
company. From September 2004 until October 2005, Mr. Soltoff served as a director of theglobe.com. Mr. Soltoff’s
experience as an officer and director in the Internet marketing sector qualifies him to be a member of our board of
directors.
Anthony R. Verdi, 66, has served as one of our directors since June 2008, as our Chief Financial Officer and Assistant Secretary since November 2005, as our Chief Operating Officer since April 2008, as Acting Principal Executive Officer from June 20, 2008 through May 18, 2011 and as Principal Executive Officer from May 18, 2011 through January 26, 2015. From 2001 until November 2005, Mr. Verdi provided consulting services to life, health and property and casualty insurance company agency and venture capital clients. Mr. Verdi served as Chief Operating Officer of Provident American Corporation and Chief Financial Officer of HealthAxis, Inc. From January 1990 until December 1998 Mr. Verdi served as Chief Financial Officer of Provident American Corporation. From July 1986 until January 1990, he was the Vice President and Controller of InterCounty Hospitalization and Health Plans, a nonprofit group medical insurer. From April 1971 until July 1986, he served in various finance and accounting capacities for the Academy Insurance Group, ultimately serving as the Assistant Controller. Mr. Verdi’s extensive experience in the health insurance industry and his financial and accounting background qualifies him to be a member of our board of directors.
Edmond J. Walters, 53, has served as one of our directors since April 2008. Mr. Walters is Founder and Chief Executive Officer of eMoney Advisor, a wealth planning and management solutions provider for financial advisors that Mr. Walters founded in 2000 and is now a wholly-owned subsidiary of Commerce Bancorp. Prior to forming eMoney Advisor in 2000, Mr. Walters spent more than 20 years in the financial services industry, advising high net worth clients. From 1983 to 1992 he was associated with Kistler, Tiffany & Company in Wayne, PA. In 1992, Walters helped found the Wharton Business Group, a financial advising firm, in Malvern, PA. Mr. Walters’ 20+ years of experience in the financial sector qualify him to be a member of our board of directors.
The Board has determined that Messrs. Adamsky, Azeez, Harrison, Harvey, Krigstein, Rich, Rowell, Soltoff and Walters are “independent” directors as defined by Rule 4200(a)(15) of the NASDAQ listing standards and as defined by Rule 10A-3(b)(1)(ii) promulgated by the Commission.
Executive Officers of the Registrant
The following table sets forth the name, age and title of persons currently serving as our executive officers. Our executive officers are appointed by, and serve at the discretion of, our board of directors.
Name
|
Age
|
Position
|
||
Donald R. Caldwell
|
68
|
Principal Executive Officer and Chairman of the board of directors of InsPro Technologies Corporation and InsPro Technologies, LLC
|
||
Mark Daley
|
61
|
Chief Revenue Officer of InsPro Technologies, LLC
|
||
John Keddy
|
50
|
Chief Information Officer of InsPro Technologies, LLC
|
||
Anthony R. Verdi
|
66
|
Chief Financial Officer and Chief Operating Officer
|
||
Robert J. Oakes
|
56
|
Vice Chairman of the board of directors InsPro Technologies Corporation
|
57 |
Donald R. Caldwell has served as one of our directors and as one of the Co-Chairman of our board of directors from April 2008 through November 24, 2009, as our Chairman since November 24, 2009 and as our Chief Executive Officer and Chairman since January 26, 2015. Mr. Caldwell founded Cross Atlantic Capital Partners, Inc. in 1999, and presently serves as its Chairman and Chief Executive Officer. He has served as a director at Rubicon Technology, Inc. since 2001 where he chairs the Compensation Committee; and at Diamond Management & Technology Consultants, Inc. (NASDAQ) from 1994 until its sale to PriceWaterhouse in 2010, and where he served as a member of their Compensation Committee, Audit Committee and as the lead Director since 2006. Mr. Caldwell is a director and a member of the Compensation and Audit Committees and Chairman of the Executive Committee of Quaker Chemical Corporation (NYSE), and a member of the Compensation Committee and the board of Voxware, Inc. , a supplier of voice driven solutions. Mr. Caldwell has been a director, Chairman of the Audit Committee and member of the compensation committee of Lighting Gaming, Inc. since 2005. Mr. Caldwell has been a director of Amber Road, Inc. (NYSE: AMBR) since 2005. Mr. Caldwell has been a director and member of the audit committee of Fox Chase Bancorp, Inc. (Nasdaq: FXCB), a stock holding company of Fox Chase Bank, since October of 2014. Mr. Caldwell was a director of Kanbay International, Inc. from 1999 through 2007 when it was purchased by Capgemini. From 1996 to 1999, Mr. Caldwell was President and Chief Operating Officer and a director of Safeguard Scientifics, Inc. Mr. Caldwell was a Certified Public Accountant in the State of New York.
Mark Daley has served as our Chief Revenue Officer since June 2014. From 2006 through June 2014 Mr. Daley served as Vice President of iGATE Global Solutions. From 2002 through 2005 Mr. Daley served as Senior Consultant in the Step Solutions Group of Milliman, Inc. From 1998 through 2002 Mr. Daley served as Executive Vice President and Chief Operating Officer of e-Nable Corporation. From 1997 through 1998 Mr. Daley served as Principal of Daley and Associates. From 1992 through 1997 Mr. Daley served as President of Securallicance/AFS.
John Keddy has served as our Chief Information Officer since September 2014. Mr. Keddy served as Vice President Information Technology for AFLAC-US, responsible for Application Services from 2008 to September 2014. Mr. Keddy served as Principal Consultant at HCL from 2007 through 2008. Mr. Keddy served as Vice President Enterprise Application Development of Conseco from 2004 through 2007. Mr. Keddy served as Vice President of IT for Annuity Division & Life Insurance Divisions of I. N. G. from 2001 to 2004. Mr. Keddy served as Program Manager/Principal Consultant for IMRglobal from 1999 to 2000. Mr. Keddy served as Management Consultant for IBM Global Services from 1998 through 1999. Mr. Keddy served as Director of Project Management of Pan American Life from 1997 through 1998. Mr. Keddy served in various management positions at Chubb Life from 1989 through 1997.
Anthony R. Verdi has served as our Chief Financial Officer and Assistant Secretary since November 2005, as our Chief Operating Officer since April 2008, as Acting Principal Executive Officer from June 20, 2008 through May 18, 2011 and as Principal Executive Officer from May 18, 2011 through January 26, 2015. From 2001 until November 2005, Mr. Verdi has provided consulting services to life, health and property and casualty insurance company agency and venture capital clients. From December 1998 until March 2001, Mr. Verdi served as Chief Operating Officer of Provident American Corporation and Chief Financial Officer of HealthAxis, Inc. From January 1990 until December 1998, Mr. Verdi served as Chief Financial Officer of Provident American Corporation. From July 1986 until January 1990, he was the Vice President and Controller of InterCounty Hospitalization and Health Plans, a nonprofit group medical insurer. From April 1971 until July 1986, he served in various finance and accounting capacities for the Academy Insurance Group, ultimately serving as the Assistant Controller.
Robert Oakes has served as the President and Chief Executive Officer of our InsPro Technologies, LLC subsidiary since our acquisition of it on October 1, 2007 through January 26, 2015 and as our Vice Chairman since January 26, 2015. From 1986 until 2007 Mr. Oakes was President and Chief Executive Officer of the general partner of Atiam Technologies L.P., a software development and servicing company that developed, expanded and serviced products to serve the insurance and financial services markets. Mr. Oakes founded Atiam in 1986 and led the company’s effort to design and develop its flagship product, InsPro Enterprise.
58 |
Board Leadership Structure and Risk Oversight
The role of chief executive officer and chairman of the board were separate positions through January 26, 2015 and were combined into a single position with Mr. Caldwell’s appointment as chief executive officer on January 26, 2015. We believe it is the chief executive officer’s responsibility to oversee the Company’s operations and the chairman’s responsibility to coordinate the appropriate functioning of the board.
The audit committee is primarily responsible for overseeing the Company’s risk management processes on behalf of the full board. The audit committee receives reports from management at least quarterly regarding the Company’s assessment of risks. In addition, the Audit Committee regularly meets with management to discuss the Company’s policies with respect to risk assessment and risk management, the Company’s major financial risk exposures and the steps management has taken to monitor and mitigate these exposures. The audit committee reports regularly to the full board of directors, which also considers the Company’s risk factors. While the board oversees the Company’s risk management, company management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our Company and that our board leadership structure supports this approach.
Code of Business Conduct and Ethics
We adopted an amended and restated Code of Business Conduct and Ethics on January 29, 2008. Our Code of Business Conduct and Ethics, in accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K, applies globally to our corporate directors, executive officers, senior financial officers and other employees. Our Code of Business Conduct and Ethics is intended to promote honest and ethical conduct, full and accurate reporting, and compliance with laws as well as other matters. A printed copy of our Code of Business Conduct and Ethics may be obtained free of charge by writing to us at InsPro Technologies Corporation, 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087.
Corporate Governance and Committees
Our board of directors currently is composed of Messrs. Adamsky, Azeez, Caldwell, Harrison, Harvey, Krigstein, Oakes, Rich, Rowell, Soltoff, Verdi and Walters. Mr. Caldwell is the Chairman of our board of directors. Directors serve until the next annual meeting of stockholders, until their successors are elected or appointed or qualified, or until their resignation or removal. Our executive officers are appointed by, and serve at the discretion of, our board of directors. Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee. Pursuant to our bylaws, our board of directors may from time to time establish other committees to facilitate the management of our business and operations.
Audit Committee
The members of our audit committee are Messrs. Caldwell, Rich and Rowell. Mr. Caldwell became chairman of the committee effective upon his appointment to the board on April 1, 2008 through January 26, 2015. Mr. Rich became chairman of the committee effective upon his appointment by the board on January 26, 2015. Our board of directors has determined that Mr. Caldwell is an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K promulgated by the Commission. Although our common stock is not listed on NASDAQ and, as a result, we are not subject to NASDAQ’s listing standards, we voluntarily strive to comply with such standards with the exception of Mr. Caldwell’s membership on the audit committee. Our board of directors, in applying the above-referenced standards, has affirmatively determined that each of Messrs. Rich and Rowell are “independent”. Mr. Caldwell is not “independent” whereas Nasdaq rule 4200(a)(15), specifies that each member of the audit committee must be “independent”.
Compensation Committee
The members of our compensation committee are Messrs. Adamsky, Harrison and Rich. Mr. Harrison chairs the committee.
59 |
Nominating and Governance Committee
The members of our nominating and governance committee are Messrs. Rowell, Harrison, Soltoff and Walters. Mr. Rowell chairs the committee. This committee is responsible for recommending qualified candidates to the board of directors for election as directors, including the slate of directors that the board proposes for election by stockholders at annual meetings. While the committee does not have a formal diversity “policy,” the committee recommends candidates based upon many factors, including the diversity of their business or professional experience, the diversity of their background and their array of talents and perspectives. We believe that the committee’s existing nominations process is designed to identify the best possible nominees for the board, regardless of the nominee’s gender, racial background, religion or ethnicity. The committee identifies candidates through a variety of means, including recommendations from members of the board and suggestions from our management, including our Chairman and Principal Executive Officer. In addition, the committee considers candidates recommended by third parties, including stockholders. Stockholders wishing to recommend director candidates for consideration by the committee may do so by writing our Secretary and giving the recommended candidate’s name, biographical data and qualifications.
The Nominating and Corporate Governance Committee operates under a formal charter adopted by the board that governs its duties and standards of performance. Copies of the Nominating and Corporate Governance Committee charter can be obtained free of charge by writing to us at InsPro Technologies Corporation, 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of our common stock to file reports of beneficial ownership and changes in beneficial ownership of our common stock and any other equity securities with the Commission. Executive officers, directors, and persons who own more than 10% of our common stock are required by Commission regulations to furnish us with copies of all Section 16(a) forms they file.
Based
solely on our review of the copies of Forms 3, 4 and 5 furnished to us, or representations from certain reporting persons that
no Forms 3, 4 or 5 were required to be filed by such persons, we believe that all of our executive officers, directors and persons
who own more than ten percent of our common stock complied with all Section 16(a) filing requirements applicable to them.
60 |
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid to, awarded to or earned during the fiscal years ended December 31, 2014 and 2013 by our Principal Executive Officer and each of our three other most highly compensated executive officers whose total salary and bonus exceeded $100,000 for services rendered to us in all capacities during 2014. The executive officers listed in the table below are referred to in this report as our “named executive officers”. There were no non-equity incentive plan compensation or non-qualified deferred compensation earnings for any of the named executive officers for the fiscal years ended December 31, 2014 and December 31, 2013.
Stock
|
Option
|
All Other
|
||||||||||||||||||||||||
Fiscal
|
Bonus ($)
|
Awards
|
Awards ($)
|
Compensation
|
||||||||||||||||||||||
Name and Principal Position
|
Year
|
Salary ($)
|
(7) |
($)
|
(8) |
($) (9)
|
Total ($)
|
|||||||||||||||||||
Donald R. Caldwell (1)
|
2014
|
- | - | - | - | - | - | |||||||||||||||||||
Chief Executive Officer,
|
2013
|
- | - | - | - | - | - | |||||||||||||||||||
Chairman of the Board of Directors
|
||||||||||||||||||||||||||
Anthony R. Verdi (2)
|
2014
|
250,000 | - | - | 438,000 | 16,296 | 704,296 | |||||||||||||||||||
Chief Executive Officer,
|
2013
|
250,000 | - | - | - | 16,335 | 266,335 | |||||||||||||||||||
Chief Financial Officer & Chief
|
||||||||||||||||||||||||||
Operating Officer
|
||||||||||||||||||||||||||
Robert J. Oakes (3)
|
2014
|
300,000 | - | - | 438,000 | 18,970 | 756,970 | |||||||||||||||||||
President & Chief Executive Officer of
|
2013
|
300,000 | - | - | - | 21,133 | 321,133 | |||||||||||||||||||
InsPro Technologies, LLC
|
||||||||||||||||||||||||||
Michael Mullin (4)
|
2014
|
- | - | - | - | - | - | |||||||||||||||||||
Chief Operating Officer of
|
2013
|
220,000 | - | - | - | 132,854 | 352,854 | |||||||||||||||||||
InsPro Technologies, LLC
|
||||||||||||||||||||||||||
Mark Daley (5)
|
2014
|
116,667 | 24,994 | - | 75,600 | 5,801 | 223,062 | |||||||||||||||||||
Chief Revenue Officer of
|
2013
|
- | - | - | - | - | - | |||||||||||||||||||
InsPro Technologies, LLC
|
||||||||||||||||||||||||||
John Keddy (6)
|
2014
|
66,288 | 40,000 | - | 117,000 | 9,905 | 233,193 | |||||||||||||||||||
Chief Information Officer of
|
2013
|
- | - | - | - | - | - | |||||||||||||||||||
InsPro Technologies, LLC
|
(1) Mr. Caldwell has served as one of our directors and as one of the Co-Chairman of our board of directors from April 2008 through November 24, 2009, as our Chairman since November 24, 2009 and as our Chief Executive Officer and Chairman since January 26, 2015. Mr. Caldwell received no compensation as Chief Executive Officer. Mr. Caldwell’s compensation received in 2014 and 2013 was that of a non-employee director and is included in the tables and disclosures with all other non employee directors.
(2) Mr. Verdi was appointed as our Chief Financial Officer on November 10, 2005, Chief Operating Officer on April 1, 2008, interim Principal Executive Officer on June 20, 2008 and Principal Executive Officer on May 18, 2011 through January 26, 2015.
(3) Mr. Oakes was appointed as President of our subsidiary InsPro Technologies, LLC from October 1, 2007 through January 26, 2015 and Vice Chairman of the board of directors of InsPro Technologies Corporation effective January 26, 2015..
61 |
(4) Mr. Mullin was appointed Chief Operating Officer of our subsidiary InsPro Technologies, LLC on June 20, 2011 and served in that capacity through December 29, 2013. Mr. Mullin’s employment terminated effective December 29, 2013.
(5) Mr. Daley was appointed Chief Revenue Officer of our subsidiary InsPro Technologies, LLC on June 2, 2014.
(6) Mr. Keddy was appointed Chief Information Officer of our subsidiary InsPro Technologies, LLC on September 24, 2014.
(7) Mr. Daley received variable compensation based on license fee revenue recognized in accordance with his variable compensation arrangement. Mr. Keddy received a one-time sign-on bonus.
(8) Represents the aggregate grant date fair value of the stock option or warrants to purchase the Company’s Series B Convertible Preferred Stock as of the date of grant using the Black-Scholes option-pricing model. Fair value is estimated based on an expected life of five years, an assumed dividend yield of 0% and the assumptions below.
Closing
|
||||||||||||||||||||||||||||||||||||||
Fair Value
|
Number of
|
Option
|
Stock Price
|
Risk Free
|
Expected
|
Assumed
|
||||||||||||||||||||||||||||||||
at Date of
|
Options
|
Exercise
|
on the Date
|
Date of
|
Expected
|
Interest
|
Life in
|
Dividend
|
||||||||||||||||||||||||||||||
Name
|
Fiscal Year
|
Grant ($)
|
Granted (#)
|
Price ($)
|
of Grant ($)
|
Grant
|
Volatility
|
Rate
|
Years
|
Yield
|
||||||||||||||||||||||||||||
Donald R. Caldwell (a)
|
2014
|
- | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
2013
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Anthony R. Verdi (b)
|
2014
|
$ | 438,000 | 300,000 | $ | 3.000 | $ | 3.000 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||||||||
2013
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Robert J. Oakes (c)
|
2014
|
$ | 438,000 | 300,000 | $ | 3.000 | $ | 3.000 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||||||||
2013
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Michael Mullin
|
2014
|
- | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
2013
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Mark Daley (b)
|
2014
|
$ | 75,600 | 1,800,000 | $ | 0.100 | $ | 0.042 |
8/19/2014
|
753 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||||||||
2013
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
John Keddy (b)
|
2014
|
$ | 117,000 | 1,800,000 | $ | 0.100 | $ | 0.065 |
11/14/2014
|
789 | % | 0.070 | % | 5.0 | 0.0 | % | ||||||||||||||||||||||
2013
|
- | - | - | - | - | - | - | - | - |
(a) Mr. Caldwell received no compensation as Chief Executive Officer. On May 22, 2014, the board of directors of the Company granted warrants to purchase 30,000 shares of Series B Preferred Stock at an exercise price equal to $3.00 per share to Mr. Caldwell. On May 22, 2014, Mr. Caldwell assigned these warrants to the Co-Investment Fund II, L.P. The warrants are immediately exercisable, non transferrable and expire on May 22, 2019. Mr. Caldwell’s compensation received in 2014 and 2013 was that of a non-employee director and is included in the tables and disclosures with all other non employee directors.
(b) On May 22, 2014, the board of directors of the Company granted warrants to purchase 300,000 shares of Series B Preferred Stock at an exercise price equal to $3.00 per share to Messrs. Verdi and Oakes. The warrants are immediately exercisable, non transferrable and expire on May 22, 2019.
(c) Options to purchase common stock issued under the Company’s 2010 Equity Compensation Plan.
62 |
(8) All other compensation paid to our named executive officers in the fiscal year ended December 31, 2013 consisted of the following:
Company
|
||||||||||||||||||||
Matching of
|
||||||||||||||||||||
Company Paid
|
Employee
|
Reimbursement
|
||||||||||||||||||
Payments for
|
Health, Life and
|
401(k) |
of Personal
|
|||||||||||||||||
Auto and
|
Disabilitly
|
Contributions
|
Living Expenses
|
|||||||||||||||||
Name
|
Equipment ($) (a)
|
Insurance ($) (b)
|
(c)
|
(d)
|
Total ($)
|
|||||||||||||||
Donald R. Caldwell
|
- | - | - | - | - | |||||||||||||||
Anthony R. Verdi
|
13,200 | 683 | 2,413 | - | 16,296 | |||||||||||||||
Robert J. Oakes
|
1,200 | 15,170 | 2,600 | - | 18,970 | |||||||||||||||
Michael Mullin
|
- | - | - | - | - | |||||||||||||||
Mark Daley
|
700 | 4,180 | 921 | - | 5,801 | |||||||||||||||
John Keddy
|
300 | 1,071 | - | 8,534 | 9,905 |
(a) Payments for auto and equipment represent monthly allowances for auto, cell phones and other equipment.
(b) Company-paid health, life and disability insurance represent the cost of company-paid insurance premiums covering the named executive officers and, in the case of health insurance premiums, their dependents. The Company paid 75% of these insurance premiums for the named executive officers. Health insurance premiums vary based on several factors, including the age of the named executive officer and the number of their covered dependents.
(c) Company matching of employee 401(k) contributions represents 25% of the employee’s contribution up to 4% of the employee’s compensation, which were fully vested for Messrs. Verdi and Oakes and unvested for Messrs. Daley and Keddy.
(d) Reimbursement of personal living expenses for Mr. Keddy represents the reimbursement of Mr. Keddy’s personal living expenses in accordance with his employment arrangement.
63 |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information for the outstanding equity awards held by our named executive officers for the year ended December 31, 2014. There have been no stock awards granted. The information below pertains to stock options, which were granted under the 2010 Equity Compensation Plan (which includes prior grants under our 2005 Incentive Stock Plan, 2006 Omnibus Equity Compensation Plan and 2008 Equity Compensation Plan), a warrant to purchase 150,000 shares of the Company’s Series A Convertible Preferred Stock, which was issued to Mr. Oakes on August 18, 2010, and a warrant to purchase 150,000 shares of the Company’s Series A Convertible Preferred Stock, which was issued to Mr. Verdi on September 14, 2011, and warrants to purchase 300,000 shares of the Company’s Series B Convertible Preferred Stock were issued to Mr. Oakes and Mr. Verdi on May 22, 2014.
Equity
|
|||||||||||||||||||
Incentive
|
|||||||||||||||||||
Plan Awards :
|
|||||||||||||||||||
Number of
|
|||||||||||||||||||
Number of
|
Number of
|
Securities
|
|||||||||||||||||
Securities
|
Securities
|
Underlying
|
|||||||||||||||||
Underlying
|
Underlying
|
Unexercised
|
Option
|
||||||||||||||||
Unexercised
|
Unexercised
|
Unearned
|
Exercise
|
Option
|
|||||||||||||||
Options
|
Options
|
Options
|
Price
|
Expiration
|
|||||||||||||||
Name
|
(#) | (#) | (#) |
($)
|
Date
|
||||||||||||||
Exercisable
|
Unexercisable
|
||||||||||||||||||
Donald R. Caldwell
|
- | - | - | - | - | ||||||||||||||
Anthony R. Verdi
|
150,000 | - | - | 4.00 |
9/14/2016
|
||||||||||||||
350,000 | - | - | 1.00 |
11/09/2015
|
|||||||||||||||
300,000 | - | - | 3.00 |
5/22/2019
|
|||||||||||||||
Robert J. Oakes
|
1,500,000 | - | - | 0.11 |
8/18/2015
|
||||||||||||||
150,000 | - | - | 4.00 |
8/18/2015
|
|||||||||||||||
300,000 | - | - | 3.00 |
5/22/2019
|
|||||||||||||||
Michael Mullin
|
- | - | - | - | - | ||||||||||||||
Mark Daley
|
300,000 | 1,500,000 | - | 0.10 |
8/19/2019
|
||||||||||||||
John Keddy
|
300,000 | 1,500,000 | - | 0.10 |
11/14/2019
|
Employment, Severance and Other Agreements
Anthony R. Verdi
Pursuant to an amended and restated employment agreement Mr. Verdi served as our Principal Executive Officer through January 26, 2015, and serves as our Chief Financial Officer and Chief Operating Officer. His amended and restated employment agreement automatically renewed for a one year term on March 31, 2013, and, if not terminated, will automatically renew for one year periods. His annual base salary was $225,000 per year from March 31, 2008 through May 30, 2011 and was then increased by the board of directors to $250,000 effective June 1, 2011. He is entitled to receive such bonus compensation as a majority of our board of directors may determine from time to time.
In the event of Mr. Verdi’s termination without cause or for good reason, he or his estate would receive his then current base annual salary, plus unpaid accrued employee benefits, which is primarily accrued vacation, plus the continuation of his employee benefits for a period of 18 months, less all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.
64 |
Robert J. Oakes
Pursuant to an amended and restated written employment agreement with InsPro Technologies, LLC, Mr. Oakes served as InsPro Technologies, LLC’s President and Chief Executive Officer through January 26, 2015, and serves as Vice Chairman of the Company’s board of directors effective January 26, 2015. Pursuant to his employment agreement, his annual base salary was $250,000 per year through September 30, 2011. On April 7, 2011, Mr. Oakes received an increase in his base compensation pursuant to his employment agreement to $300,000 retroactive to July 1, 2010, upon InsPro Technologies, LLC achievement of one calendar quarter of positive operating cash flow, which occurred during the calendar quarter ended March 31, 2011. Mr. Oakes was entitled to bonus compensation equal to 100% of the InsPro Technologies, LLC’s net income up to a maximum of $100,000 in 2010 and $100,000 in 2011. Mr. Oakes is entitled to such fringe benefits as are available to other executives of InsPro Technologies Corporation. Mr. Oakes employment agreement was automatically extended for an additional one year term on March 25, 2013 and will be annually automatically extended thereafter unless either party provides written notification to the other party of non-renewal no later than 60 days prior to the termination date of the agreement.
In the event of Mr. Oakes’s termination without cause or for good reason, he or his estate would receive his then current base annual salary, plus unpaid accrued employee benefits, which is primarily accrued vacation, plus the continuation of his employee benefits for a period of 12 months, less all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.
Pursuant to Mr. Oakes employment agreement, he is subject to a non competition and non-solicitation provision during the term of his employment agreement and for a period of one year following his termination.
Michael Mullin
Pursuant to a written employment agreement with InsPro Technologies, LLC Mr. Mullin served as InsPro Technologies, LLC’s Chief Operating Officer from June 20, 2011 through December 29, 2013. His employment agreement automatically renewed for a one year term on June 20, 2013 and was terminated effective December 29, 2013. Pursuant to his employment agreement, his annual base salary was $220,000 per year plus a $1,000 per month benefits allowance paid each month that he was not a participant in the Company’s health insurance plans offer to executives and such fringe benefits as are available to other executives of InsPro Technologies Corporation.
Pursuant to his written offer of employment Mr. Mullin was entitled to variable incentive cash compensation each calendar quarter amounting to 100% of InsPro Technologies, LLC’s positive cash flow up to a maximum of $12,500 per calendar quarter.
On November 29, 2013, we agreed to a Separation of Employment and General Release Agreement with Mr. Mullin, whereby we and Mr. Mullin mutually agreed that Mr. Mullin’s employment terminated effective December 29, 2013, which we refer to as the separation date. Under the terms of this agreement, we agreed to continue to pay Mr. Mullin his current monthly base salary of $18,333 for a period of six (6) months after the separation date, less applicable tax withholding, which amount will be paid in equal monthly installments in accordance with our normal payroll practices. Any unvested stock option grants held by Mr. Mullin as of the separation date were forfeited. All vested stock option grants held by Mr. Mullin as of the separation date will expire in accordance with their original expiration term.
Mark Daley
Mr. Daley has served as InsPro Technologies, LLC’s Chief Revenue Officer effective June 2, 2014. Mr. Daley is employed as an employee-at-will. Mr. Daley is entitled to variable incentive compensation based on a percentage of new sales pursuant to a written variable compensation arrangement with InsPro Technologies, LLC.
65 |
John Keddy
Pursuant to a written employment agreement with InsPro Technologies, LLC Mr. Keddy serves as InsPro Technologies, LLC’s Chief Information Officer effective September 25, 2014. Pursuant to his employment agreement, his annual base salary is $250,000 per year plus such fringe benefits as are available to other executives of the Company. His employment agreement has a term of one year and automatically renewed for a one year term on each anniversary unless either party provides written notification to the other party of non-renewal no later than 30 days prior to the termination date of the agreement.
Pursuant to his written offer of employment Mr. Keddy was entitled to receive a $40,000 one-time sign-on bonus, receive up to $3,500 per week for up to 10 weeks effective September 25, 2014, as reimbursement for out-of-pocket temporary housing costs, receive up to $12,000 for reimbursement of reasonable moving expenses and be eligible to participate in the Company’s management bonus program beginning on January 1, 2015.
In the event of Mr. Keddy’s termination without cause or for good reason, he or his estate would receive his then current base monthly salary for a period of 6 months, less all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.
Pursuant to Mr. Keddy’s employment agreement, he is subject to a non competition and non-solicitation provision during the term of his employment agreement and for a period of 6 months following his termination.
66 |
Compensation of Directors
The following table sets forth information concerning the compensation of all individuals who served on our board of directors during the fiscal year ended December 31, 2014. There was no non-equity incentive plan compensation or nonqualified deferred compensation earnings paid to any of our directors for the year ended December 31, 2014. Directors who are employees receive no additional or special compensation for serving as directors. All compensation for Messrs. Oakes and Verdi is included in the Summary Compensation Table. Mr. Caldwell was appointed chief executive officer of the Company on January 26, 2015. Mr. Caldwell’s compensation received was that of a non employee director in 2014 and is included with all other non employee directors’ compensation in the table below. Messrs. Adamsky, and Caldwell have assigned all of their board compensation to The Co-Investment Fund II, L.P. Messrs. Adamsky and Caldwell are stockholders, directors and officers of Co-Invest II Capital Partners, Inc., which is the general partner of Co-Invest Management II, L.P., which is the general partner of The Co-Investment Fund II, L.P.
Name
|
Fees Earned or
Paid in Cash
($) (1)
|
Stock Awards
($)
|
Option
Awards
(3)
($)
|
Total
($)
|
||||||
Brian Adamsky
|
(2)
|
6,000
|
-
|
43,800
|
49,800
|
|||||
Michael Azeez
|
6,000
|
-
|
43,800
|
49,800
|
||||||
Donald Caldwell
|
(2)
|
8,500
|
-
|
43,800
|
52,300
|
|||||
John Harrison
|
6,000
|
-
|
43,800
|
49,800
|
||||||
Kenneth Harvey
|
4,500
|
-
|
438,000
|
442,500
|
||||||
Alan Krigstein
|
(3)
|
-
|
-
|
30,000
|
30,000
|
|||||
Sanford Rich
|
8,500
|
-
|
43,800
|
52,300
|
||||||
L.J. Rowell
|
8,500
|
-
|
43,800
|
52,300
|
||||||
Paul Soltoff
|
6,000
|
-
|
43,800
|
49,800
|
||||||
Edmond Walters
|
4,500
|
-
|
43,800
|
48,300
|
(1) | Represents board and committee meeting fees paid to our directors under our Non-Employee Director Compensation Plan. |
(2)
|
Messrs. Adamsky and Caldwell have assigned all of their board compensation to The Co-Investment Fund II, L.P.
|
(3)
|
Mr. Krigstein has assigned his equity compensation to Independence Blue Cross, LLC and he has declined all cash compensation.
|
67 |
(4)
|
The following table sets forth information concerning warrants to purchase shares of the Company’s Series B Convertible Preferred Stock, which were issued to all members of the Board as of May 22, 2014, and to Mr. Krigstein on August 14, 2014, which collectively represent options and warrants issued to non-employee directors during the fiscal year ended December 31, 2014.
|
Name
|
Fair Value
at Date of
Grant ($)
|
Number of
Options
Granted (#)
|
Option
Exercise
Price ($)
|
Closing
Stock Price
on the Date
of Grant ($)
|
Date of
Grant
|
Expected
Volatility
|
Risk Free
Interest
Rate
|
Expected
Life in Years
|
Assumed
Dividend
Yield
|
|||||||||||||||||||
Brian Adamsky (a)
|
43,800 | 30,000 | 3.00 | 3.00 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||
Michael Azeez
|
43,800 | 30,000 | 3.00 | 3.00 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||
Donald Caldwell (a)
|
43,800 | 30,000 | 3.00 | 3.00 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||
John Harrison
|
43,800 | 30,000 | 3.00 | 3.00 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||
Kenneth Harvey
|
438,000 | 300,000 | 3.00 | 3.00 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||
Alan Krigstein
|
30,000 | 30,000 | 3.00 | 3.00 |
8/14/2014
|
768 | % | 0.060 | % | 4.8 | 0 | % | ||||||||||||||||
Sanford Rich
|
43,800 | 30,000 | 3.00 | 3.00 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||
L.J. Rowell
|
43,800 | 30,000 | 3.00 | 3.00 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||
Paul Soltoff
|
43,800 | 30,000 | 3.00 | 3.00 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % | ||||||||||||||||
Edmond Walters
|
43,800 | 30,000 | 3.00 | 3.00 |
5/22/2014
|
769 | % | 0.050 | % | 5.0 | 0.0 | % |
|
(a)
|
Messrs. Adamsky and Caldwell have assigned all of their board compensation to The Co-Investment Fund II, L.P.
|
|
(b)
|
Mr. Krigstein has assigned his equity compensation to Independence Blue Cross, LLC.
|
68 |
The following table sets forth information concerning the aggregate number of options and warrants available, which are options or warrants issued, outstanding and exercisable, for non-employee directors as of December 31, 2014.
Aggregate Number of
Options/Warrants Available as
of December 31, 2014
|
||
Brian Adamsky (a)
|
-
|
|
Michael Azeez (b)
|
30,000
|
|
Donald Caldwell (a)
|
-
|
|
John Harrison (c)
|
250,000
|
|
(b)
|
30,000
|
|
Kenneth Harvey (b)
|
300,000
|
|
Alan Krigstein (d)
|
-
|
|
Sanford Rich (c)
|
200,000
|
|
(b)
|
30,000
|
|
L.J. Rowell (c)
|
200,000
|
|
(b)
|
30,000
|
|
Paul Soltoff (c)
|
150,000
|
|
(b)
|
30,000
|
|
Edmond Walters (b)
|
30,000
|
|
(a)
|
Messrs. Adamsky and Caldwell have assigned all of their board compensation to The Co-Investment Fund II, L.P.
|
|
(b)
|
Represents warrants to purchase shares of the Company’s Series B Convertible Preferred Stock.
|
|
(c)
|
Represents stock options granted from the Company’s 2010 Equity Compensation Plan.
|
|
(d)
|
Mr. Krigstein has assigned his equity compensation to Independence Blue Cross, LLC.
|
Director Compensation Plan
Directors who are employees receive no additional or special compensation for serving as directors. Non employee directors receive the following compensation under the terms of our Non Employee Director Compensation Plan, which was amended on December 13, 2011, to remove all equity compensation and annual cash retainer components from the plan and to increase the per Board meeting cash fee effective January 2, 2012:
The compensation of the Company’s non-employee directors is as follows:
|
●
|
$1,500 meeting fee for each director for each meeting of the Board attended in person or via conference telephone.
|
|
●
|
$500 meeting fee for each committee member for each meeting of a committee of the Board, attended in person or via conference telephone.
|
69 |
We also purchase directors’ and officers’ liability insurance for the benefit of our directors and officers as a group. We also reimburse our non-employee directors for their reasonable out-of-pocket expenses incurred in attending meetings of our board of directors or its committees in accordance with the Company’s expense reimbursement policies in effect from time to time. No fees are payable to directors for attendance at specially called meetings of the board.
70 |
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|
Security Ownership of Certain Beneficial Owners and Management
The following table shows information known by us with respect to the beneficial ownership of our common stock, Series A Convertible Preferred Stock and Series B Convertible Preferred Stock as of March 27, 2015, for each of the following persons:
|
●
|
our directors;
|
|
●
|
our named executive officers;
|
|
●
|
all of our directors, director nominees and executive officers as a group; and
|
|
●
|
each person or group of affiliated persons or entities known by us to beneficially own 5% or more of our common stock, Series A Convertible Preferred Stock or Series B Convertible Preferred Stock.
|
The number of shares beneficially owned, beneficial ownership and percentage ownership are determined in accordance with the rules of the Commission. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power and includes any shares that an individual or entity has the right to acquire beneficial ownership of within 60 days of March 27, 2015 through the exercise of any warrant, stock option or other right. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares underlying options and warrants that are exercisable within 60 days of March 27, 2015 are considered to be outstanding. To our knowledge, except as indicated in the footnotes to the following table and subject to community property laws where applicable, the persons named in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them. The following table is based on 41,543,655 shares of common stock, 1,276,750 shares of Series A Convertible Preferred Stock and 3,309,378 shares of Series B Convertible Preferred Stock outstanding as of March 27, 2015. Unless otherwise indicated, the address of all individuals and entities listed below is InsPro Technologies Corporation, 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087.
Name of Beneficial Owner
|
Number of Shares
Beneficially
Owned
|
Title of Class
|
Percent of
Shares
Beneficially
|
|||
Directors and Executive Officers:
|
||||||
Brian Adamsky
|
72,768,204 (1)(2)
|
Common Stock
|
71.6%
|
|||
1,250,000 (2)
|
Series A Preferred
Stock
|
97.9%
|
||||
1,190,711 (2)(3)
|
Series B Preferred
Stock
|
30.8%
|
||||
Michael Azeez
|
8,499,990 (4)(5)
|
Common Stock
|
16.8%
|
|||
313,333(4)(7)
|
Series B Preferred
Stock
|
8.2%
|
||||
Donald R. Caldwell
|
72,882,214 (1)(2)
|
Common Stock
|
71.7%
|
|||
1,250,000 (2)
|
Series A Preferred
Stock
|
97.9%
|
||||
1,190,711 (2)(3)
|
Series B Preferred
Stock
|
30.8%
|
71 |
Name of Beneficial Owner
|
Number of Shares
Beneficially
Owned
|
Title of Class
|
Percent of
Shares
Beneficially
|
|||
Mark Daley
|
300,000 (24)
|
Common Stock
|
*
|
|||
Robert J. Oakes
|
10,957,232 (6)
|
Common Stock
|
21.0%
|
|||
151,250 (8)
|
Series A Preferred
Stock
|
10.6%
|
||||
300,000 (10)
|
Series B Preferred
Stock
|
7.3%
|
||||
John Harrison
|
1,053,333 (9)
|
Common Stock
|
2.5%
|
|||
1,250
|
Series A Preferred
Stock
|
*
|
||||
30,000 (7)
|
Series B Preferred
Stock
|
*
|
||||
Kenneth Harvey
|
6,000,000 (11)
|
Common Stock
|
12.6%
|
|||
300,000 (10)
|
Series B Preferred
Stock
|
7.3%
|
||||
John Keddy
|
300,000 (24)
|
Common Stock
|
*
|
|||
Alan Krigstein
|
-
|
Common Stock
|
*
|
|||
L. J. Rowell
|
1,015,600 (12)
|
Common Stock
|
2.4%
|
|||
30,000 (7)
|
Series B Preferred
Stock
|
*
|
||||
Paul Soltoff
|
988,333 (13)
|
Common Stock
|
2.3%
|
|||
1,250
|
Series A Preferred
Stock
|
*
|
||||
30,000 (7)
|
Series B Preferred
Stock
|
*
|
||||
Sanford Rich
|
948,333 (14)
|
Common Stock
|
2.2%
|
|||
1,250
|
Series A Preferred
Stock
|
*
|
||||
30,000 (7)
|
Series B Preferred
Stock
|
*
|
||||
Anthony R. Verdi
|
9,468,333 (15)
|
Common Stock
|
18.6%
|
|||
151,250(8)
|
Series A Preferred
Stock
|
10.6%
|
||||
300,000 (10)
|
Series B Preferred
Stock
|
7.3%
|
||||
Edmond Walters
|
771,633(21)
|
Common Stock
|
1.8%
|
|||
30,000 (7)
|
Series B Preferred Stock
|
*
|
||||
All directors and executive officers as a group
(12 persons)
|
112,885,003 (1)(2) (4)(5)(6)(9)
(11)(12)(13)
(14)(15)(16)(17)
(18)(20)(21)
|
Common Stock
|
82.5%
|
|||
1,556,250 (23)
|
Series A Preferred Stock
|
98.7%
|
||||
2,554,044 (2)
(4) (22)
|
Series B Preferred Stock
|
51.6%
|
72 |
Name of Beneficial Owner
|
Number of Shares
Beneficially
Owned
|
Title of Class
|
Percent of
Shares
Beneficially
|
|||
Holders of More than Five Percent of Our Common Stock, Series A Convertible Preferred Stock and Series B Convertible Preferred Stock:
|
||||||
The Co-Investment Fund II, L. P.
|
72,768,204 (16)
|
Common Stock
|
71.6%
|
|||
1,250,000
|
Series A Preferred Stock
|
97.9%
|
||||
1,190,711 (3)
|
Series B Preferred Stock
|
30.8%
|
||||
Independence Blue Cross
|
65,600,010 (17)
|
Common Stock
|
60.9%
|
|||
2,196,667 (7)
|
Series B Preferred Stock
|
57.2%
|
||||
Azeez Investors, LLC
|
8,499,990 (5)
|
Common Stock
|
17.0%
|
|||
283,333 (7)
|
Series B Preferred Stock
|
7.4%
|
||||
Scarpa Family Trust, 2005
|
6,500,010 (18)
|
Common Stock
|
13.5%
|
|||
216,667
|
Series B Preferred Stock
|
5.7%
|
||||
Alvin H. Clemens
|
2,929,080 (19)
|
Common Stock
|
7.1%
|
* Less than 1%
(1)
|
Includes 12,646,874 shares of common stock, 11,307,110 shares underlying warrants, which are convertible within 60 days of March 27, 2015, 25,000,000 shares underlying 1,250,000 shares of Series A Convertible Preferred Stock, which are convertible, at the sole option of the holder, into twenty shares of our common stock per share of Series A Convertible Preferred Stock, and 23,814,220 shares underlying 1,190,711 shares of Series B Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock, which are beneficially owned by Co-Investment, designee of Cross Atlantic Capital Partners, Inc. Also includes 1,200,000 shares underlying warrants which are exercisable within 60 days of March 27, 2015, to purchase 60,000 shares of Series B Convertible Preferred Stock, which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock, which are beneficially owned by Co-Investment.
|
(2)
|
Represents securities owned by Co-Investment, the designee of Cross Atlantic Capital Partners, Inc., of which Brian Adamsky is secretary, treasurer and chief financial officer and of which Donald R. Caldwell is managing partner. Mr. Caldwell is also a shareholder, director and officer of Co-Invest II Capital Partners, Inc., which is the general partner of Co-Invest Management II, L.P., which is the general partner of Co-Investment. Mr. Adamsky and Mr. Caldwell disclaim beneficial ownership of these securities, except to the extent of their pecuniary interest therein.
|
(3)
|
Includes 60,000 underlying shares underlying warrants which are exercisable within 60 days of March 27, 2015, which are beneficially owned by Co-Investment.
|
(4)
|
Includes securities owned by Azeez Investors, LLC. Mr. Azeez is a managing member of Azeez Investors, LLC. Mr. Azeez disclaims beneficial ownership of these securities, except to the extent of his pecuniary interest therein.
|
73 |
(5)
|
Includes 2,833,330 shares underlying warrants which are exercisable within 60 days of March 27, 2015. Includes 5,666,660 shares underlying 283,333 shares of Series B Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock. Includes 600,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 30,000 shares of Series B Convertible Preferred Stock which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(6)
|
Includes 1,500,000 shares underlying options and 33,333 shares underlying warrants, all of which are exercisable within 60 days of March 27, 2015. Includes 3,000,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 150,000 shares of Series A Convertible Preferred Stock which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series A Convertible Preferred Stock. Includes 25,000 shares underlying 1,250 shares of Series A Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series A Convertible Preferred Stock. Includes 6,000,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 300,000 shares of Series B Convertible Preferred Stock which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(7)
|
Includes 30,000 underlying shares for warrants, which are exercisable within 60 days of March 27, 2015.
|
(8)
|
Includes 150,000 shares underlying warrants which are exercisable within 60 days of March 27, 2015.
|
(9)
|
Includes 250,000 shares underlying options and 33,333 shares underlying warrants, all of which are exercisable within 60 days of March 27, 2015. Includes 25,000 shares underlying 1,250 shares of Series A Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series A Convertible Preferred Stock. Includes 600,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 30,000 shares of Series B Convertible Preferred Stock which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(10)
|
Includes 300,000 shares underlying warrants, which are exercisable within 60 days of March 27, 2015.
|
(11)
|
Includes 6,000,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 300,000 shares of Series B Convertible Preferred Stock which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(12)
|
Includes 200,000 shares underlying options, which are exercisable within 60 days of March 27, 2015. Includes 600,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 30,000 shares of Series B Convertible Preferred Stock which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(13)
|
Includes 150,000 shares underlying options and 33,333 shares underlying warrants, all of which are exercisable within 60 days of March 27, 2015. Includes 25,000 shares underlying 1,250 shares of Series A Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series A Convertible Preferred Stock. Includes 600,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 30,000 shares of Series B Convertible Preferred Stock which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(14)
|
Includes 200,000 shares underlying options and 33,333 shares underlying warrants, all of which are exercisable within 60 days of March 27, 2015. Includes 25,000 shares underlying 1,250 shares of Series A Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series A Convertible Preferred Stock. Includes 600,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 30,000 shares of Series B Convertible Preferred Stock which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
74 |
(15)
|
Includes 350,000 shares underlying options and 33,333 shares underlying warrants, all of which are exercisable within 60 days of March 27, 2015. Includes 25,000 shares underlying 1,250 shares of Series A Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series A Convertible Preferred Stock. Includes 3,000,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 150,000 shares of Series A Convertible Preferred Stock, which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series A Convertible Preferred Stock. Includes 6,000,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 300,000 shares of Series B Convertible Preferred Stock, which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(16)
|
Includes 17,173,777 shares underlying warrants, which are exercisable within 60 days of March 27, 2015. Includes 25,000,000 shares underlying 1,250,000 shares of Series A Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series A Convertible Preferred Stock. Includes 22,614,220 shares underlying 1,130,711 shares of Series B Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock. Also includes 1,200,000 shares underlying warrants which are exercisable within 60 days of March 27, 2015, to purchase 60,000 shares of Series B Convertible Preferred Stock, which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock, which are beneficially owned by Co-Investment.
|
(17)
|
Includes 22,266,670 shares underlying warrants which are exercisable within 60 days of March 27, 2015. Includes 43,353,340 shares underlying 2,167,667 shares of Series B Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock. Also includes 600,000 shares underlying warrants which are exercisable within 60 days of March 27, 2015, to purchase 30,000 shares of Series B Convertible Preferred Stock, which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock
|
(18)
|
Includes 2,166,670 shares underlying warrants which are exercisable within 60 days of March 27, 2015. Includes 4,333,340 shares underlying 216,667 shares of Series B Convertible Preferred Stock, which are convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(19)
|
Includes 1,000,000 shares of common stock held by The Clemens-Beaver Creek Limited Partnership, of which Alvin H. Clemens is the general partner. Also includes 100,000 shares held by Mr. Clemens’s minor children.
|
(20)
|
Includes 23,400,000 shares underlying warrants which are exercisable within 60 days of March 27, 2015, to purchase 1,140,000 shares of Series B Convertible Preferred Stock, which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(21)
|
Includes 600,000 shares underlying a warrant which is exercisable within 60 days of March 27, 2015, to purchase 30,000 shares of Series B Convertible Preferred Stock which are also convertible, at the sole option of the holder, into 20 shares of our common stock per share of Series B Convertible Preferred Stock.
|
(22)
|
Includes 1,170,000 shares underlying warrants which are exercisable within 60 days of March 27, 2015.
|
(23)
|
Includes 300,000 shares underlying warrants which are exercisable within 60 days of March 27, 2015.
|
(24)
|
Includes 300,000 shares underlying options which are exercisable within 60 days of March 27, 2015. Excludes 1,500,000 shares underlying options which are not exercisable within 60 days of March 27, 2015.
|
75 |
Equity Compensation Plan Information
|
The following table shows certain information concerning our common stock to be issued in connection with our equity compensation plans as of December 31, 2013:
EQUITY COMPENSATION PLAN
Plan Category
|
Number of Securities
to be Issued upon Exercise of Outstanding Options, Warrants, Convertible Preferred Stock and Rights |
Weighted-Average Exercise Price of Outstanding Options, Warrants, Convertible Preferred Stock and Rights |
Number of Securities
Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the first Column) |
|||||
Equity compensation plans
approved by security holders |
6,725,000
|
$ |
0.46
|
22,271,980
|
||||
Equity compensation plans not
approved by security holders(1)(2)(3) |
29,400,000
|
$ |
0.16
|
0
|
||||
Total(1)(2)(3)
|
36,125,000
|
$ |
0.22
|
22,271,980
|
(1)
|
Includes warrants issued as compensation, which were not part of an equity compensation plan that was approved by security holders, to two executives to purchase in aggregate 300,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share, at an exercise price equal to $4.00 per share for a period of five years from the grant date of the warrants. These warrants are immediately exercisable and non transferrable. Each share of Series A Preferred Stock is convertible into 20 shares of common stock, subject to adjustment, at the option of the holder of the Series A Convertible Preferred Stock. On August 18, 2010, the board of directors of the Company granted a warrant to purchase 150,000 shares of Series A Preferred Stock to Mr. Robert Oakes. This warrant expires on August 18, 2015. On September 14, 2011, the board of directors of the Company granted a warrant to purchase 150,000 shares of Series A Convertible Preferred Stock to Anthony R. Verdi. This warrant expires on September 14, 2016.
|
(2)
|
Includes warrants issued as compensation on May 22, 2014, which were not part of an equity compensation plan that was approved by security holders, to Messrs. Harvey, Oakes and Verdi to purchase in aggregate 300,000 shares of Series B Convertible Preferred Stock, par value $0.001 per share (“Series B Stock”), at an exercise price equal to $3.00 per share for a period of five years from the grant date of the warrants. Also includes warrants issued as compensation on May 22, 2014, which were not part of an equity compensation plan that was approved by security holders, to Messrs. Adamsky, Azeez, Caldwell, Harrison, Rich, Rowell, Soltoff and Walters to each purchase in aggregate 30,000 shares of Series B Stock at an exercise price equal to $3.00 per share for a period of five years from the grant date of the warrants. Messrs. Adamsky and Caldwell have assigned all of their board compensation including the aforementioned warrants to The Co-Investment Fund II, L.P. Also includes warrants issued as compensation on August 14, 2014, which were not part of an equity compensation plan that was approved by security holders, to Mr. Krigstein to purchase in aggregate 30,000 shares of Series B Stock at an exercise price equal to $3.00 per share until May 22, 2019. Mr. Krigstein has assigned the aforementioned warrants to Independence Blue Cross, LLC. All of the aforementioned warrants are immediately exercisable and non transferrable. Each share of Series B Preferred Stock is convertible into 20 shares of common stock, subject to adjustment, at the option of the holder of the Series B Convertible Preferred Stock.
|
76 |
(3)
|
Assumes the warrants to purchase in aggregate 300,000 shares of Series A Convertible Preferred Stock at an exercise price equal to $4.00 per share are converted into 20 shares of common stock for each share of Series A Preferred Stock, or 6,000,000 shares of common stock in aggregate, with a weighted average exercise price of $0.20 per common stock share. Also assumes the warrants to purchase in aggregate 1,170,000 shares of Series B Convertible Preferred Stock at an exercise price equal to $3.00 per share are converted into 20 shares of common stock for each share of Series B Preferred Stock, or 23,400,000 shares of common stock in aggregate, with a weighted average exercise price of $0.15 per common stock share.
|
A description of the material terms of our equity compensation plans can be found in Note 6 – Shareholders’ (Deficit) Equity – Stock Options and in the notes to the consolidated financial statements contained in Item 7 of this Annual Report on Form 10-K.
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
|
Transactions With Related Persons
|
From the beginning of our last fiscal year until the date of this Annual Report on Form 10-K, there has been no transaction, nor is there any transaction currently proposed, to which we were, are, or would be a participant, in which the amount involved exceeded or would exceed the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years and in which any of our directors or executive officers, any holder of more than 5% of our common stock or any member of the immediate family of any of these persons or entities had or will have a direct or indirect material interest, other than the transactions listed below.
|
●
|
On May 22, 2014, the board of directors of the Company granted warrants to purchase 1,140,000 shares of Series B Convertible Preferred Stock with a par value of $0.001 per share (“Series B Stock”) at an exercise price equal to $3.00 per share (the “Series B Warrants”) to the directors of the Company. Messrs. Adamsky and Caldwell assigned their warrants to The Co-Investment Fund II, L.P. The Series B Warrants are immediately exercisable, non transferrable and expire on May 22, 2019.
|
|
●
|
On May 22, 2014, the board of the Company authorized the grant of a warrant to purchase 30,000 shares of the Series B Stock at an exercise price equal to $3.00 per share (the “IBC Warrant”) to either Mr. Alan Krigstein or to Independence Blue Cross (“IBC”) or its affiliate as designated by Mr. Krigstein subject to and effective on the date of Mr. Krigstein’s designation to the Company of the recipient of the Warrant. Mr. Alan Krigstein, the executive vice president and chief financial officer of Independence Hospital Indemnity Plan, Inc. (formerly named Independence Blue Cross) and Independence Blue Cross, LLC (“IBC, LLC”), was subsequently elected as a director of the Company effective June 3, 2014. On August 14, 2014, the Company received Mr. Krigstein’s written notice designating the IBC Warrant to be issued to IBC, LLC. The Company granted the Warrant to IBC, LLC effective August 14, 2014. The IBC Warrant is immediately exercisable, non transferrable and will expire on May 22, 2019.
|
77 |
|
●
|
On January 30, 2015, the Company and InsPro Technologies issued a Secured Convertible Promissory Note (“Note”) to The Co-Investment Fund II, L.P., a holder of more than 5% of our common stock on an as converted basis (“Co-Investment”), pursuant to a Secured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”). In connection with the Note Purchase Agreement, the Company, InsPro Technologies and Co-Investment entered into a Security Agreement (the “Security Agreement”, and together with the Note and the Note Purchase Agreement, the “Financing Agreements”). Pursuant to the terms and subject to the conditions set forth in the Financing Agreements, Co-Investment provided a loan in the amount of $1,000,000 (“Loan”) to the Company and InsPro Technologies, which is secured by all assets of the Company and InsPro Technologies other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (“Collateral”). Pursuant to the Secured Convertible Promissory Note (“Note”), interest in the amount of 8% per annum, calculated on a 365 or 366 day year, as the case may be, and the principal amount of $1,000,000 and accrued interest will be paid on or before June 30, 2016. Co-Investment has the right to convert principal and accrued interest into the equity securities of the Company in the event that the Company issues and sells equity securities to investors on or before the repayment in full of the Note in an equity financing resulting in gross proceeds to the Company of at least $1,000,000. In the event that the Company consummates a consolidation, merger of reorganization in which the stockholders of the Company do not hold at least a majority of the voting power of the surviving entity in substantially the same proportion immediately after such consolidation, merger or reorganization, or the Company consummates a transaction or series of related transaction in which in excess of fifty percent of the voting power is transferred, then upon notice to Co-Investment the Company shall repay the entire outstanding principal balance and all unpaid accrued interest under the Note upon the closing of such transaction. The Company and InsPro Technologies may prepay the Note at any time in whole or in part without payment of penalty or unearned interest.
|
Pursuant to the Security Agreement, the Company shall not, without the Co-Investment’s prior consent, sell, lease or otherwise dispose of any equipment or fixtures constituting Collateral. In addition, the Company and InsPro Technologies will furnish Co-Investment with such information and documents regarding the Collateral and their financial condition, business, assets and liabilities as is reasonably requested by Co-Investment.
In connection with the Financing Agreements, Co-Investment entered into a Subordination Agreement (“Subordination Agreement”) with SVB, the terms of such agreement were approved by the Company, InsPro Technologies and Atiam Technologies L.P. Pursuant to the Subordination Agreement, Co-Investment agreed, among other things, that all obligations under the Amended and Restated Loan Agreement and any other obligations to SVB would be senior to the outstanding indebtedness under the Financing Agreements.
●
|
On March 27, 2015, the Company and InsPro Technologies issued a second Secured Convertible Promissory Note (“The Second Note”) to Co-Investment pursuant to a second Secured Convertible Promissory Note Purchase Agreement (the “Second Note Purchase Agreement”). The terms of the Second Note are essentially identical to the terms of the Note and the terms of the Second Note Purchase Agreement are essentially identical to the terms of the Note Purchase Agreement. Co-Investment provided a second loan in the amount of $1,000,000 to the Company and InsPro Technologies.
|
●
|
On March 17, 2015, the Company received a loan from Edmond Walters, a current director of the Company, in the amount of $500,000 (the “Loan From Mr. Walters”). The Loan From Mr. Walters was a pre-payment by Mr. Walters in connection with any future issuance of equity securities of the Company, and is convertible into equity securities of the Company in connection with any such future issuance of equity securities as agreed to by the Company and Mr. Walters. The Loan From Mr. Walters is refundable to Mr. Walters on demand, without interest, if the Company does not consummate an equity financing within a time period to be determined by the Company and Mr. Walters.
|
Director Independence
|
Although our common stock is not listed on NASDAQ and, as a result, we are not subject to NASDAQ’s listing standards, we voluntarily strive to comply with such standards. As required under the NASDAQ listing standards, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by a company’s board of directors. Our board of directors, in applying the standards for independence as defined by Rule 4200(a)(15) of the NASDAQ listing standards and Rule 10A-3(b)(1)(ii) promulgated by the Commission, has affirmatively determined that Messrs. Adamsky, Azeez, Harrison, Harvey, Krigstein, Rich, Rowell, Soltoff and Walters are “independent” directors.
78 |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
A summary of the fees of D’Arelli Pruzansky, P.A. for the years ended December 31, 2014 and 2013 are set forth below:
2014 Fees
|
2013 Fees
|
|||||||
Audit Fees (1)
|
$ | 82,500 | $ | 82,500 | ||||
Audit Related Fees (2)
|
- | 1,500 | ||||||
Tax Fees
|
- | - | ||||||
All Other Fees
|
- | - | ||||||
Total Fees
|
$ | 82,500 | $ | 84,000 |
|
|
(1)
|
Audit fees of D’Arelli Pruzansky, P.A. for the fiscal years ended December 31, 2014 and 2013 were for professional services rendered for the 2014 and 2013 audits and our interim quarterly reviews of our consolidated financial statements, which are normally provided in connection with statutory and regulatory filings or engagements.
|
|
(2)
|
Audit-related fees of D’Arelli Pruzansky, P.A. for the fiscal year ended December 31, 2013 was for professional services rendered for the review of the Company’s registration statement on form S-1.
|
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors.
The audit committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services.
79 |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Form 10-K:
1. Financial Statements. See Financial Statements on page 19 of this Annual Report on Form 10-K.
2. Financial Statement Schedules. None, as all information required in these schedules is included in the consolidated financial statements or the notes thereto.
3. Exhibits. The Exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated below.
Exhibit
Number
|
Description
|
|
2.1
|
Agreement and Plan of Merger, dated November 23, 2005, among Darwin Resources Corp., Health Benefits Direct Corporation, and HBDC II, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2005).
|
|
2.2
|
Agreement and Plan of Merger, dated as of September 21, 2007, by and among the Company, HBDC Acquisition, LLC, System Consulting Associates, Inc. and the shareholders of System Consulting Associates, Inc. party thereto (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 26, 2007).
|
|
3.1
|
Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 22, 2005).
|
|
3.2
|
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 3, 2007).
|
|
3.3
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2005).
|
|
3.4
|
Certificate of Merger of HBDC II, Inc. with and into Health Benefits Direct Corporation (incorporated by reference to Exhibit 3.4 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2005).
|
|
3.5
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.5 to the Registrant’s Registration Statement on Form SB-2, filed with the Commission on February 1, 2008).
|
|
3.6
|
Certificate of Designation with respect to shares of Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on January 21, 2009).
|
|
3.7
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2009).
|
|
3.8
|
Certificate of Designation with respect to shares of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 1, 2010).
|
80 |
Exhibit
Number
|
Description
|
3.9
|
Certificate of Amendment to Certificate of Designation with respect to shares of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 23, 2010).
|
|
3.10
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.10 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).
|
|
3.11
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.11 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).
|
|
3.12**
|
Certificate of Amendment to Certificate of Incorporation filed August 20, 2014.
|
|
4.1
|
Securities Purchase Agreement, dated March 30, 2007, by and between the Company and the Investors party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 30, 2007).
|
|
4.2
|
Registration Rights Agreement, dated March 30, 2007, by and between the Company and the Investors party thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 30, 2007).
|
|
4.3
|
Registration Rights Agreement, dated October 1, 2007, by and between Health Benefits Direct Corporation and Computer Command and Control Company (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 4, 2007).
|
|
4.4
|
Registration Rights Agreement, dated October 1, 2007, by and among the Company and Robert J. Oakes, Jeff Brocco, Tim Savery and Lisa Roetz (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 4, 2007).
|
|
4.5
|
Securities Purchase Agreement, dated March 31, 2008, by and between the Company and the Investor party thereto (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
|
|
4.6
|
Securities Purchase Agreement, dated March 31, 2008, by and between the Company and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
|
|
4.7
|
Form of Registration Rights Agreement, dated March 31, 2008, by and among the Company and the Investors party thereto (incorporated by reference from Exhibit 4.4 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
|
|
4.8
|
Form of Registration Rights Agreement, dated March 31, 2008, by and among the Company and the Investors party thereto (incorporated by reference from Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
|
|
4.9
|
Board Representation Agreement, dated March 31, 2008, between the Company and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.5 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
|
|
4.10
|
Securities Purchase Agreement, dated January 14, 2009, by and between the Company and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 21, 2009).
|
81 |
Exhibit
Number
|
Description
|
4.11
|
Registration Rights Agreement, dated January 14, 2009, by and between the Company and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 21, 2009).
|
|
4.12
|
Preferred Warrant (incorporated by reference from Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 21, 2009).
|
|
4.13
|
Form of Subscription Rights Certificate (incorporated by reference from Exhibit 4.18 to the Registrant’s Registration Statement on Form S-1, filed with the Commission on December 31, 2009).
|
|
4.14
|
Form of Warrant (incorporated by reference from Exhibit 4.19 to the Registrant’s Registration Statement on Form S-1, filed with the Commission on December 31, 2009).
|
|
4.15
|
Securities Purchase Agreement, dated September 30, 2010, by and among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
|
|
4.16
|
Registration Rights Agreement, dated September 30, 2010, by and among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
|
|
4.17
|
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
|
|
4.18
|
Board Representation Agreement, dated September 30, 2010, by and between Health Benefits Direct Corporation and Independence Blue Cross (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
|
|
4.19
|
Form of Addendum and Certificate of Adjustment to Warrant (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
|
|
4.20
|
Form of Addendum and Certificate of Adjustment to Warrant (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
|
|
4.21
|
Note Conversion Agreement, dated December 22, 2010, by and between InsPro Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 23, 2010).
|
|
4.22
|
Registration Rights Agreement, dated December 22, 2010, by and between InsPro Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 23, 2010).
|
|
4.23
|
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 23, 2010).
|
|
4.24
|
Securities Purchase Agreement, dated November 20, 2012, by and among InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 26, 2012).
|
|
4.25
|
Registration Rights Agreement, dated November 20, 2012, by and among InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 26, 2012).
|
82 |
Exhibit
Number
|
Description
|
4.26
|
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 26, 2012).
|
|
4.27
|
Form of Warrant (incorporated by reference to Exhibit 4.33 to the Registrant’s Registration Statement on Form S-1, filed with the Commission on February 1, 2013)
|
|
4.28
|
Securities Purchase Agreement, dated September 12, 2013, by and among InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 12, 2013).
|
|
4.29
|
Registration Rights Agreement, dated September 12, 2013, by and among InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 12, 2013).
|
|
4.30
|
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 12, 2013).
|
|
4.35
|
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 12, 2013).
|
|
10.1
|
Health Benefits Direct Corporation Compensation Plan for Directors (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 20, 2006).
|
|
10.2
|
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on January 17, 2006).
|
|
10.3
|
Securities Contribution Agreement, dated September 9, 2005, among Health Benefits Direct Corporation, Marlin Capital Partners I, LLC, Scott Frohman, Charles A. Eissa, Platinum Partners II LLC and Dana Boskoff (incorporated by reference to Exhibit 10.22 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2005).
|
|
10.4
|
Health Benefits Direct Corporation 2008 Equity Compensation Plan (incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on March 31, 2008).
|
|
10.5
|
Health Benefits Direct Corporation 2008 Equity Compensation Plan Form of Nonqualified Stock Option Grant (incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on March 28, 2008).
|
|
10.6
|
Lease, dated July 7, 2006, between Health Benefits Direct Corporation and Radnor Properties-SDC, L.P. (incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on July 10, 2006).
|
|
10.7
|
Agreement to Transfer Partnership Interests, dated October 1, 2007, by and among HBDC Acquisition, LLC and the former partners of BileniaTech, L.P. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on October 4, 2007).
|
|
10.8
|
Amended and Restated Employment Agreement, dated November 27, 2007, between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 3, 2007).
|
83 |
Exhibit
Number
|
Description
|
10.9
|
Amendment 2008-1 to Amended and Restated Employment Agreement, dated March 31, 2008, between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 31, 2008).
|
|
10.10
|
Client Transition Agreement, between Health Benefits Direct Corporation, HBDC II, Inc. and eHealthInsurance Services, Inc. (incorporated by reference to Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2009).
|
|
10.11
|
Health Benefits Direct Corporation 2010 Equity Compensation Plan (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).
|
|
10.12
|
InsPro Technologies Corporation Amended and Restated Compensation Policy for Non-Employee Directors (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 16, 2011).
|
|
10.13
|
Amended and Restated Loan and Security Agreement, dated as of December 2, 2014, by and among the Company, InsPro Technologies, LLC, Atiam Technologies L.P. and Silicon Valley Bank (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8
|
|
10.14
|
Secured Convertible Promissory Note Purchase Agreement, dated as of January 30, 2015, by and among InsPro Technologies Corporation, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed with the Commission on February 3, 2015)
|
|
10.15
|
Form of Secured Convertible Promissory Note due June 30, 2016 (incorporated by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K, filed with the Commission on February 3, 2015)
|
|
10.16
|
Security Agreement, dated as of January 30, 2015, by and among InsPro Technologies Corporation, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K, filed with the Commission on February 3, 2015)
|
|
10.17
|
Subordination Agreement, dated as of January 30, 2015, by and among The Co-Investment Fund II, L.P., Silicon Valley Bank, InsPro Technologies Corporation, InsPro Technologies, LLC and Atiam Technologies L.P. (incorporated by reference to Exhibit 10.4 to the Registrants Current Report on Form 8-K, filed with the Commission on February 3, 2015)
|
|
10.18 |
Secured Convertible Promissory Note Purchase Agreement by and among InsPro Technologies Corporation, InsPro Technologies, LLC and The Co-Investment Fund II, L.P., dated as of March 27, 2015 (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2015) | |
10.19 |
Form of Secured Convertible Promissory Note due June 30, 2016 (incorporated by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2015) | |
10.20 |
Amended and Restated Security Agreement by and among InsPro Technologies Corporation, InsPro Technologies, LLC and The Co-Investment Fund II, L.P., dated as of March 27, 2015 (incorporated by reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2015) | |
14
|
Amended and Restated Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 4, 2008).
|
|
21**
|
Subsidiaries of InsPro Technologies Corporation
|
|
23.1**
|
Consent of D’Arelli Pruzansky, P.A.
|
|
31.1**
|
Section 302 Certification of Principal Executive Officer.
|
|
31.2**
|
Section 302 Certification of Principal Financial Officer.
|
|
32.1**
|
Section 906 Certification of Principal Executive Officer and Principal Financial Officer.
|
** Filed herewith
84 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INSPRO TECHNOLOGIES CORPORATION
|
|||
By:
|
/s/ Anthony R. Verdi | ||
Anthony R. Verdi
|
|||
Chief Financial Officer and Chief Operating Officer
|
We, the undersigned officers and directors of InsPro Technologies Corporation, hereby severally constitute and appoint Anthony R. Verdi our true and lawful attorney with full power to him to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K filed herewith and any and all subsequent amendments to said Annual Report, and generally to do all such things in our names and on our behalf in our capacities as officers and directors to enable InsPro Technologies Corporation to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney, or any of them, to said Annual Report and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Anthony R. Verdi
|
Chief Financial Officer, Chief Operating Officer and Director
|
March 27, 2015
|
||
Anthony R. Verdi
|
(Principal Financial and Accounting Officer)
|
|||
/s/ Donald Caldwell
|
Principal Executive Officer, Chairman
|
March 27, 2015
|
||
Donald R. Caldwell
|
||||
/s/ Brian Adamsky
|
Director
|
March 27, 2015
|
||
Brian Adamsky
|
||||
/s/ Michael Azeez
|
Director
|
March 27, 2015
|
||
Michael Azeez
|
/s/ John Harrison
|
Director
|
March 27, 2015
|
||
John Harrison
|
||||
/s/ Kenneth Harvey
|
Director
|
March 27, 2015
|
||
Kenneth
Harvey
|
||||
/s/ Alan Krigstein
|
Director
|
March 27, 2015
|
||
Alan Krigstein | ||||
/s/ Paul Soltoff
|
Director
|
March 27, 2015
|
||
Paul Soltoff
|
||||
/s/ Sanford Rich
|
Director
|
March 27, 2015
|
||
Sanford Rich
|
||||
/s/ L. J. Rowell
|
Director
|
March 27, 2015
|
||
L.J. Rowell
|
||||
Director
|
||||
Edmond Walters
|
85 |
EXHIBIT INDEX
Exhibit
Number
|
Description
|
|
2.1
|
Agreement and Plan of Merger, dated November 23, 2005, among Darwin Resources Corp., Health Benefits Direct Corporation, and HBDC II, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2005).
|
|
2.2
|
Agreement and Plan of Merger, dated as of September 21, 2007, by and among the Company, HBDC Acquisition, LLC, System Consulting Associates, Inc. and the shareholders of System Consulting Associates, Inc. party thereto (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 26, 2007).
|
|
3.1
|
Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 22, 2005).
|
|
3.2
|
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 3, 2007).
|
|
3.3
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2005).
|
|
3.4
|
Certificate of Merger of HBDC II, Inc. with and into Health Benefits Direct Corporation (incorporated by reference to Exhibit 3.4 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2005).
|
|
3.5
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.5 to the Registrant’s Registration Statement on Form SB-2, filed with the Commission on February 1, 2008).
|
|
3.6
|
Certificate of Designation with respect to shares of Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on January 21, 2009).
|
|
3.7
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2009).
|
|
3.8
|
Certificate of Designation with respect to shares of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 1, 2010).
|
|
3.9
|
Certificate of Amendment to Certificate of Designation with respect to shares of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 23, 2010).
|
|
3.10
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.10 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).
|
|
3.11
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.11 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).
|
86 |
Exhibit
Number
|
Description
|
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3.12**
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Certificate of Amendment to Certificate of Incorporation filed August 20, 2014.
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4.1
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Securities Purchase Agreement, dated March 30, 2007, by and between the Company and the Investors party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 30, 2007).
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4.2
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Registration Rights Agreement, dated March 30, 2007, by and between the Company and the Investors party thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 30, 2007).
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4.3
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Registration Rights Agreement, dated October 1, 2007, by and between Health Benefits Direct Corporation and Computer Command and Control Company (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 4, 2007).
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4.4
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Registration Rights Agreement, dated October 1, 2007, by and among the Company and Robert J. Oakes, Jeff Brocco, Tim Savery and Lisa Roetz (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 4, 2007).
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4.5
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Securities Purchase Agreement, dated March 31, 2008, by and between the Company and the Investor party thereto (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
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4.6
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Securities Purchase Agreement, dated March 31, 2008, by and between the Company and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
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4.7
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Form of Registration Rights Agreement, dated March 31, 2008, by and among the Company and the Investors party thereto (incorporated by reference from Exhibit 4.4 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
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4.8
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Form of Registration Rights Agreement, dated March 31, 2008, by and among the Company and the Investors party thereto (incorporated by reference from Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
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4.9
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Board Representation Agreement, dated March 31, 2008, between the Company and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.5 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 31, 2008).
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4.10
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Securities Purchase Agreement, dated January 14, 2009, by and between the Company and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 21, 2009).
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4.11
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Registration Rights Agreement, dated January 14, 2009, by and between the Company and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 21, 2009).
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4.12
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Preferred Warrant (incorporated by reference from Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 21, 2009).
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4.13
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Form of Subscription Rights Certificate (incorporated by reference from Exhibit 4.18 to the Registrant’s Registration Statement on Form S-1, filed with the Commission on December 31, 2009).
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87 |
Exhibit
Number
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Description
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4.14
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Form of Warrant (incorporated by reference from Exhibit 4.19 to the Registrant’s Registration Statement on Form S-1, filed with the Commission on December 31, 2009).
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4.15
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Securities Purchase Agreement, dated September 30, 2010, by and among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
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4.16
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Registration Rights Agreement, dated September 30, 2010, by and among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
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4.17
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Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
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4.18
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Board Representation Agreement, dated September 30, 2010, by and between Health Benefits Direct Corporation and Independence Blue Cross (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
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4.19
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Form of Addendum and Certificate of Adjustment to Warrant (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
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4.20
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Form of Addendum and Certificate of Adjustment to Warrant (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2010).
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4.21
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Note Conversion Agreement, dated December 22, 2010, by and between InsPro Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 23, 2010).
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4.22
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Registration Rights Agreement, dated December 22, 2010, by and between InsPro Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 23, 2010).
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4.23
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Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 23, 2010).
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4.24
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Securities Purchase Agreement, dated November 20, 2012, by and among InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 26, 2012).
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4.25
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Registration Rights Agreement, dated November 20, 2012, by and among InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 26, 2012).
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4.26
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Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 26, 2012).
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4.27
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Form of Warrant (incorporated by reference to Exhibit 4.33 to the Registrant’s Registration Statement on Form S-1, filed with the Commission on February 1, 2013)
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4.28
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Securities Purchase Agreement, dated September 12, 2013, by and among InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 12, 2013).
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88 |
Exhibit
Number
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Description
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4.29
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Registration Rights Agreement, dated September 12, 2013, by and among InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 12, 2013).
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4.30
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Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 12, 2013).
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4.35
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Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 12, 2013).
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10.1
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Health Benefits Direct Corporation Compensation Plan for Directors (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 20, 2006).
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10.2
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Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on January 17, 2006).
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10.3
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Securities Contribution Agreement, dated September 9, 2005, among Health Benefits Direct Corporation, Marlin Capital Partners I, LLC, Scott Frohman, Charles A. Eissa, Platinum Partners II LLC and Dana Boskoff (incorporated by reference to Exhibit 10.22 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 30, 2005).
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10.4
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Health Benefits Direct Corporation 2008 Equity Compensation Plan (incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on March 31, 2008).
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10.5
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Health Benefits Direct Corporation 2008 Equity Compensation Plan Form of Nonqualified Stock Option Grant (incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on March 28, 2008).
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10.6
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Lease, dated July 7, 2006, between Health Benefits Direct Corporation and Radnor Properties-SDC, L.P. (incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on July 10, 2006).
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10.7
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Agreement to Transfer Partnership Interests, dated October 1, 2007, by and among HBDC Acquisition, LLC and the former partners of BileniaTech, L.P. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on October 4, 2007).
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10.8
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Amended and Restated Employment Agreement, dated November 27, 2007, between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 3, 2007).
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10.9
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Amendment 2008-1 to Amended and Restated Employment Agreement, dated March 31, 2008, between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on March 31, 2008).
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10.10
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Client Transition Agreement, between Health Benefits Direct Corporation, HBDC II, Inc. and eHealthInsurance Services, Inc. (incorporated by reference to Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2009).
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89 |
Exhibit
Number
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Description
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10.11
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Health Benefits Direct Corporation 2010 Equity Compensation Plan (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).
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10.12
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InsPro Technologies Corporation Amended and Restated Compensation Policy for Non-Employee Directors (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 16, 2011).
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10.13
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Amended and Restated Loan and Security Agreement, dated as of December 2, 2014, by and among the Company, InsPro Technologies, LLC, Atiam Technologies L.P. and Silicon Valley Bank (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 8, 2014).
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10.14
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Secured Convertible Promissory Note Purchase Agreement, dated as of January 30, 2015, by and among InsPro Technologies Corporation, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed with the Commission on February 3, 2015)
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10.15
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Form of Secured Convertible Promissory Note due June 30, 2016 (incorporated by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K, filed with the Commission on February 3, 2015)
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10.16
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Security Agreement, dated as of January 30, 2015, by and among InsPro Technologies Corporation, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K, filed with the Commission on February 3, 2015)
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10.17
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Subordination Agreement, dated as of January 30, 2015, by and among The Co-Investment Fund II, L.P., Silicon Valley Bank, InsPro Technologies Corporation, InsPro Technologies, LLC and Atiam Technologies L.P. (incorporated by reference to Exhibit 10.4 to the Registrants Current Report on Form 8-K, filed with the Commission on February 3, 2015)
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10.18 | Secured Convertible Promissory Note Purchase Agreement by and among InsPro Technologies Corporation, InsPro Technologies, LLC and The Co-Investment Fund II, L.P., dated as of March 27, 2015 (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2015) | |
10.19 | Form of Secured Convertible Promissory Note due June 30, 2016 (incorporated by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2015) | |
10.20 | Amended and Restated Security Agreement by and among InsPro Technologies Corporation, InsPro Technologies, LLC and The Co-Investment Fund II, L.P., dated as of March 27, 2015 (incorporated by reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2015) | |
14
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Amended and Restated Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 4, 2008).
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21**
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Subsidiaries of InsPro Technologies Corporation
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23.1**
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Consent of D’Arelli Pruzansky, P.A.
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31.1**
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Section 302 Certification of Principal Executive Officer.
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31.2**
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Section 302 Certification of Principal Financial Officer.
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32.1**
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Section 906 Certification of Principal Executive Officer and Principal Financial Officer.
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** Filed herewith
90 |