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EX-31.2 - EXHIBIT 31.2 - InsPro Technologies Corpt1700182_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - InsPro Technologies Corpt1700182_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - InsPro Technologies Corpt1700182_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - InsPro Technologies Corpt1700182_ex31-1.htm
EX-23.1 - EXHIBIT 23.1 - InsPro Technologies Corpt1700182_ex23-1.htm
EX-21 - EXHIBIT 21 - InsPro Technologies Corpt1700182_ex21.htm
EX-3.14 - EXHIBIT 3.14 - InsPro Technologies Corpt1700182_ex3-14.htm
EX-3.13 - EXHIBIT 3.13 - InsPro Technologies Corpt1700182_ex3-13.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

þANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2016

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                   

 

Commission file number: 000-51701

 

INSPRO TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   98-0438502
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)
     
1510 Chester Pike    
400 Baldwin Tower    
Eddystone, Pennsylvania   19087
(Address of Principal Executive Offices)   (Zip Code)

 

(484) 654-2200

 

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.     ¨  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.     ¨  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  ¨

 

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  ¨

 

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.  ¨

 

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 ¨ Accelerated filer  ¨
Non-accelerated filer  ¨ 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  ¨    No  x

 

The aggregate market value of common stock, par value $0.001 per share, held by non-affiliates at June 30, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter) was $1,110,749. 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, 2016.

 

As of March 30, 2017, 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

 

    Page
     
PART I    
Item 1. Business   4
Item 1A. Risk Factors   7
Item 1B. Unresolved Staff Comments   7
Item 2. Properties   7
Item 3. Legal Proceedings   7
Item 4. Mine Safety Disclosures   7
     
PART II    
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   8
Item 6. Selected Financial Data   8
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk   19
Item 8. Financial Statements and Supplementary Data   F-1
Item 9. Changes in and Disagreements With  Accountants on Accounting and Financial Disclosure   20
Item 9A. Controls and Procedures   20
Item 9B. Other Information   20
     
PART III    
Item 10. Directors, Executive Officers and Corporate Governance   21
Item 11. Executive Compensation   27
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   34
Item 13. Certain Relationships and Related Transactions, and Director Independence   41
Item 14. Principal Accountant Fees and Services   44
Item 15. Exhibits and Financial Statement Schedules   45

 

 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. Business.

 

Overview

 

InsPro Technologies Corporation (“InsPro Technologies”, “we”, “our”) is a technology company that provides InsPro EnterpriseTM, which is a software application, used by insurance companies and administrators in the insurance industry.

 

We acquired Atiam Technologies, L.P. on October 1, 2007. HBDC Acquisition, LLC, which changed its name to InsPro Technologies, LLC (“InsPro LLC”) on May 14, 2009, develops, sells and supports our InsPro Enterprise software application. InsPro Enterprise is a comprehensive, web-based insurance administration software application, which was introduced by Atiam Technologies, L.P. 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 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 LLC, and its predecessor, Systems Consulting Associates, Inc.(“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 both a licensed and an application service provider (“ASP”) use of InsPro Enterprise, which is used for insurance administration and marketing for group and individual insurance business lines. InsPro Enterprise efficiently processes agent, direct market, worksite and web site generated business.

 

During 2016, we earned $21,830,928 in revenue of which 30% was earned from Trustmark Insurance Company, 16% earned from various subsidiaries of Cap Gemini S.A. and 14% from Cigna Corporate Services, LLC.

 

InsPro Enterprise 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 small third party administrators, operating in environments ranging from a single server environment to 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 EnterpriseTM 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 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 Accenture (Accenture Life Insurance & Annuity Platform), Synnex Corporation (Concentrix/GIAS and Genelco Software Solutions), Computer Sciences Corporation (FutureFirst), EXLService Holdings (LifePro), Majesco, 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, 2016 we had 78 full time and 2 part time employees for a total of 80 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. (“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 (“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 and the officers of our wholly-owned subsidiary InsPro Technologies, LLC are both located at 1510 Chester Pike, 400 Baldwin Tower, Eddystone, Pennsylvania 19022. Our telephone number is (484) 654-2200. The web site of our wholly-owned subsidiary InsPro Technologies, LLC 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 (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, 1510 Chester Pike, 400 Baldwin Tower, Eddystone, Pennsylvania 19022 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 1A. Risk factors.

 

As a “smaller reporting company,” we are not required to provide the information required by this Item.

 

ITEM 1B. Unresolved Staff Comments.

 

As a “smaller reporting company,” we are not required to provide the information required by this Item.

 

Item 2. PropertIES.

 

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 lease approximately 24,377 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, 2018. The 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 increased to $25,619 per month February 1, 2013 through January 31, 2014, increased to $26,351 per month February 1, 2014 through January 31, 2015, increased to $27,082 per month February 1, 2015 through March 31, 2015, increased to $37,082 through January 31, 2016, increased to $37,814 per month February 1, 2016 through March 31, 2016, decrease to $27,814 per month from April 1, 2016 through January 31, 2017, and increase to $28,546 per month from January 1, 2017 through January 31, 2018.

 

Item 3. legal proceedings.

 

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. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

 7 

 

PART II

 

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

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.

 

2015:        
First quarter, ended March 31, 2015   $0.090   $0.040
Second quarter, ended June 30, 2015   $0.075   $0.030
Third quarter, ended September 30, 2015   $0.060   $0.030
Fourth quarter, ended December 31, 2015   $0.0625   $0.015
         
2016:        
First quarter, ended March 31, 2016   $0.045   $0.031
Second quarter, ended June 30, 2016   $0.042   $0.025
Third quarter, ended September 30, 2016   $0.100   $0.038
Fourth quarter, ended December 31, 2016   $0.090   $0.023
         
2016:        
First quarter, through March 30, 2017   $0.0724   $0.0280

 

Holders of Record

 

Based on information furnished by our transfer agent, as of March 30, 2017, 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.

 

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

 

We have not issued any unregistered securities that were not previously disclosed on our quarterly reports on Form 10-Q or current reports on Form 8-K filed during the fiscal year.

 

ITEM 6.Selected financial data

 

As a “smaller reporting company,” we are not required to provide the information required by this Item.

 

 8 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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 LLC”).

 

InsPro EnterpriseTM is a comprehensive, web-based insurance administration software application. InsPro Enterprise was introduced by Atiam Technologies L.P. 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 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 is based upon the Company’s consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of financial statements 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 2016 and 2015 include the warrant liability, allowance for doubtful accounts, valuation of stock-based compensation, the useful lives and valuation of property and equipment, and deferred revenue. Actual results may differ from these estimates under different assumptions or conditions.

 

 9 

 

The Company 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 clients’ servers or on the Company’s servers located at a third party’s site.

 

The Company’s software maintenance fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and the InsPro Enterprise help desk.

 

The Company’s 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.

 

The Company’s revenue is generally recognized under FASB ASC 985-605 (“ASC 985-605”). For software arrangements involving multiple elements, which are license fees, professional services, ASP services and maintenance services, the Company allocates 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.

 

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.

 

 10 

 

Effective August 18, 2015, the Company entered into a five year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated 3rd party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective clients for their administration of long term care insurance products for an initial fee of $2,500,000 (the “Reseller Fee”). Pursuant to the Reseller Agreement, the Reseller Fee is fully or partially refundable to the Reseller in the event that the Company materially breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation or seeks protection under bankruptcy during the term of the Reseller Agreement (each a “Refund Event”). The Reseller Fee was fully refundable if a Refund Event occurred before August 31, 2016. A Refund Event did not occur as of December 31, 2016, and as a result the Company recognized $500,000 of Reseller Fee as revenue in the year ended December 31, 2016. The Company shall refund the following amounts to the Reseller if a Refund Event occurs between the following dates; $2,000,000 between September 1, 2016 and August 31, 2017, $1,500,000 between September 1, 2017 and August 31, 2018, and $1,000,000 between September 1, 2018 and August 31, 2019. As of September 30, 2016 the Company has recorded the $2,000,000 Reseller Fee in deferred revenue ($500,000 included in short term liabilities and $1,500,000 included in long term liabilities).

 

The unearned portion of the Company’s revenue, which is revenue collected but not yet recognized as earned, has been included in the consolidated balance sheet as a liability for deferred revenue.

 

 11 

 

Results of Operations for the Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

 

Revenues

 

For the year ended December 31, 2016 (“2016”) and 2015 (“2015”) our revenues include the following:

 

   For the Year Ended December 31,   Increase (Decrease) 
   2016   2015   Dollars   Percentage 
                 
Professional services, gross  $13,961,722   $12,048,909   $1,912,813    15.9%
Stock-based fees paid to client   (1,299,963)   -    (1,299,963)   -100.0%
ASP revenue   6,826,292    6,419,912    406,380    6.3%
Sales of software licenses   10,000    1,036,624    (1,026,624)   -99.0%
Maintenance revenue   1,740,721    1,799,923    (59,202)   -3.3%
Reseller fee revenue   500,000    -    500,000    100.0%
Sale of equipment   20,126    -    20,126    100.0%
Sub-leasing and other revenue   72,030    72,189    (159)   -0.2%
                     
Total  $21,830,928   $21,377,557   $453,371    2.1%

 

·In 2016 our professional services revenue, gross, increased as a result of higher billable implementation and post 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.

 

·On April 4, 2016, the Company entered into an agreement with an existing client, which among other things, included a provision that the Company issue within 30 days to the client a warrant to purchase in aggregate a total of 2,000,000 shares of the Company’s Series B Preferred Stock, which is immediately exercisable (the “2016 Series B Warrants”). The 2016 Series B Warrants have a three year term, a cashless exercise provision and an exercise price of $3.00 per share. On May 4, 2016 the Company issued the 2016 Series B Warrant to the client. The fair value of the 2016 Series B Warrants was estimated on April 4, 2016, which was the date of the agreement with the client, to be $1,299,963 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 503%, risk-free interest rate: 0.38%, expected life in years: 3 based on the contract life of the 2016 Series B Warrants, and assumed dividend yield: 0%.

 

·In 2016 our ASP revenue increased primarily as a result of increased fees from an existing client’s increased utilization of InsPro Enterprise. 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 clients’ servers or on the Company’s servers located at a third party’s site.

 

·In 2016 we earned $10,000 of license fee revenue, which included the resale of third party software to an InsPro Enterprise client. In 2015 we earned $1,036,624 of license fee revenue, which included an $850,000 license fee for InsPro Enterprise recognized for a client that was implemented in 2015 and the re-sale of third party software licenses to clients in the process of implementing InsPro Enterprise.

 

 12 

 

·In 2016 we earned $500,000 of reseller fee revenue pertaining to the Reseller Agreement with the Reseller whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective clients for their administration of long term care insurance products for Reseller Fee of $2,500,000. The Reseller Fee was fully refundable if a Refund Event occurred before August 31, 2016. A Refund Event did not occur as of September 30, 2016, and as a result the Company recognized $500,000 of Reseller Fee as revenue 2016. The Company shall refund the following amounts to the Reseller if a Refund Event occurs between the following dates; $2,000,000 between September 1, 2016 and August 31, 2017, $1,500,000 between September 1, 2017 and August 31, 2018, and $1,000,000 between September 1, 2018 and August 31, 2019.

 

·In 2016 we earned $20,126 on the sale of third party equipment to an InsPro Enterprise client.

 

·Other revenue consists of reimbursements of office and administrative expenses pertaining to various agreements with related and unrelated parties.

 

Cost of Revenues

 

Our cost of revenues consisted of the following:

 

   For the Year Ended December 31,   Increase (Decrease) 
   2016   2015   Dollars   Percentage 
                 
Compensation, employee benefits and related taxes  $7,519,551   $8,034,470   $(514,919)   -6.4%
Professional fees   10,317,169    11,973,271    (1,656,102)   -13.8%
Depreciation   382,876    490,551    (107,675)   -21.9%
Rent, utilities, telephone and communications   443,348    486,976    (43,628)   -9.0%
Other cost of revenues   407,261    717,716    (310,455)   -43.3%
   $19,070,205   $21,702,984   $(2,632,779)   -12.1%

 

·In 2016 our salaries, employee benefits and related taxes component of cost of revenues decreased as compared to 2015 primarily as a result of decreased employee staffing.

 

·In 2016 our professional fees component of cost of revenues decreased as compared to 2015 as a result of decreased utilization of several outside consulting firms, which were assisting us with modifications to InsPro Enterprise’s functionality and new clients’ implementations of InsPro Enterprise.

 

·In 2016 our depreciation expense component of cost of revenues decreased as compared to 2015. Depreciation expense decreased as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for these assets.

 

·In 2016 our rent, utilities, telephone and communications component of cost of revenues decreased as compared to 2015 primarily due to a lesser percentage allocated to cost of revenues and a larger percentage of cost allocated to selling, general and administrative expense in 2016 as compared to 2015.

 

·In 2016 our other cost of revenues component of cost of revenues decreased as compared to 2015. The decrease was primarily the result of $177,675 of the cost of 3rd party licensed software resold to two clients in 2015 and decreased travel and lodging costs associated with multiple implementations of InsPro Enterprise in 2015 . Other cost of revenues consisted of the cost of 3rd party licensed software and equipment resold to clients, computer processing incurred primarily to provide ASP hosting services, hardware and software, travel and entertainment, and office expenses.

 

 13 

 

Gross (Loss) Profit

 

As a result of the aforementioned factors, we reported a gross profit of $2,760,723 in 2016, as compared to a gross loss of $325,427 in 2015. The results from operations in 2016 were favorably impacted by higher revenues combined with lower cost of revenues, which is primarily a result of the lower utilization of several outside consulting firms that assisted with modifications to InsPro Enterprise’s functionality and implementations of InsPro Enterprise with new clients.

 

Selling, General and Administrative Expenses

 

Our selling, general and administrative expense consisted of the following:

 

   For the Year Ended December 31,   Increase (Decrease) 
   2016   2015   Dollars   Percentage 
                 
Compensation, employee benefits and related taxes  $3,337,346   $3,336,287   $1,059    0.0%
Advertising and other marketing   140,552    148,880    (8,328)   -5.6%
Depreciation   118,587    109,379    9,208    8.4%
Rent, utilities, telephone and communications   405,032    364,569    40,463    11.1%
Professional fees   709,383    927,623    (218,240)   -23.5%
Other general and administrative   762,666    1,212,826    (450,160)   -37.1%
   $5,473,566   $6,099,564   $(625,998)   -10.3%

 

·In 2016 our depreciation expense component of cost of revenues increased as compared to 2015 as a result of a larger percentage of cost allocated to selling, general and administrative expense and a lesser percentage allocated to cost of revenues in 2016 as compared to 2015.

 

·In 2016 rent, utilities, telephone and commissions increased as compared to 2015 primarily due to a larger percentage of cost allocated to selling, general and administrative expense and a lesser percentage allocated to cost of revenues in 2016 as compared to 2015 and higher expenses pertaining to our Eddystone office.

 

·In 2016 professional fees decreased as compared to 2015 primarily due to royalty expense incurred to an outside consulting firm in 2015.

 

·In 2016 our other general and administrative expenses decreased as compared to 2015. The decrease is primarily the result of $263,501 of lower allowance for doubtful collection of accounts receivable expense, $118,371 of lower taxes other than income, $52,500 of bank fees incurred in 2015 as a result of the Company’s early termination of a loan from Silicon Valley Bank (“SVB”), and $21,377 lower travel expenses.

 

 14 

 

Operating loss from continuing operations

 

As a result of the aforementioned factors, we reported a loss from continuing operations of $2,712,843 in 2016, as compared to $6,424,991 in 2015.

 

Other income (expenses)

 

Gain on the sale of equipment in 2015 was the result of the sale of certain computer equipment to an InsPro Enterprise client.

 

Interest expense decreased in the 2016 as compared to 2015 primarily due to the repayment of loans with The Co-Investment Fund II, L. P. (“Co-Investment”) and from SVB. Interest expense is attributable to interest on the Company’s loans with Co-Investment, SVB, capital leases and note payable for premium financing on a portion of the Company’s insurance coverages.

 

Gain on discontinued operations

 

Results from discontinued operations were as follows:

 

   For the Year Ended December 31,   Increase (Decrease) 
   2016   2015   Dollars   Percentage 
Revenues:                
Commission and other revenue from carriers  $10,016   $18,499   $(8,483)   -45.9%
Transition policy commission pursuant to the Agreement   88,006    165,044    (77,038)   -46.7%
                     
    98,022    183,543    (85,521)   -46.6%
                     
Operating expenses:                    
Other general and administrative   27,867    27,746    121    0.4%
                     
    27,867    27,746    121    0.4%
                     
Income from discontinued operations  $70,155   $155,797   $(85,642)   -55.0%

 

Revenues and income from discontinued operations in 2016 decreased as compared to 2015 due to declines in our discontinued telesales call center produced agency business. We reported a gain from discontinued operations of $0 per share in 2016 and 2015.

 

On February 20, 2009, the Company entered into and completed the sale of its agency business to eHealth Insurance Services, Inc. The Company earns renewal commissions from certain insurance companies and a transition policy commission pursuant to a client transition agreement with eHealth Insurance Services, Inc.

 

Net loss

 

As a result of these factors discussed above, we reported a net loss of $2,667,937 or $0.06 net loss per share, in 2016 as compared to a net loss of $6,376,468, or $0.15 net loss per share in 2015.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At December 31, 2016, we had a cash balance of $3,161,617 and a working capital deficit of ($2,648,881).

 

 15 

 

Net cash provided by operations was $175,243 in 2016 as compared to cash used of $3,636,327 in 2015. Impacting our cash flow from operations was our net loss of $2,667,937 in 2016 as compared to our net loss of $6,376,468 in 2015 and:

 

·Decreases in accounts receivable of $1,625,620 in 2016, which is primarily the result of collections from clients for services billed in 2015 that were current and past due and to a lesser extent lower professional services billed in the fourth quarter of 2016 as compared to the fourth quarter of 2015.

 

·Decreases in deferred revenue of $895,221 in 2016, which is primarily the result of $500,000 of Reseller fees collected in 2015 and earned in 2016 and to lesser extent professional fees prepaid in 2015 and earned in 2016.

 

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 expense of $501,463 and $599,930 in 2016 and 2015, respectively.

 

·Recorded stock-based compensation expense of $222,142 and $500,739 in 2016 and 2015, respectively.

 

·Recorded stock based fees to client as a reduction to revenue of $1,299,963 in 2016.

 

·Recorded gain on the sale of used equipment of $17,738 in 2015.

 

Net cash used by investing activities in 2016 was $34,351 as compared to $60,809 in 2015.

 

 16 

 

Net cash used in financing activities in 2016 was $377,568 as compared to cash provided by financing activities of $3,664,428 in 2015.

 

·On February 2, 2016 the Company filed a registration statement for a rights offering on Form S-1/A, which the Commission declared effective on February 5, 2016, to distribute to shareholders excluding residents of Arizona and California at no charge, one non-transferable subscription right for each 16,615 shares of our Common Stock, 831 shares of our Series A Preferred Stock and 830 shares of our Series B Preferred Stock owned as of January 31, 2016 (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 shareholders’ behalf, as a beneficial owner of such shares. The basic subscription right entitled the holder to purchase one unit (“Subscription Unit”) at a subscription price of $240. A Subscription Unit consisted of 80 shares of Series B Preferred Stock and a warrant to purchase 800 shares of Common Stock that expires on November 20, 2017 at an exercise price of $0.15 per share. Effective with the expiration of the subscription rights, which occurred on March 14, 2016, holders of subscription rights exercised in aggregate 17 basic subscription rights and 0 over subscription rights for a total 17 Subscription Units. The Company received $4,080 in gross proceeds as a result of the exercise of Subscription Units. As a result of the exercise of 17 Subscription Units the Company issued effective on March 14, 2016 in aggregate 1,360 shares of Series B Preferred Stock and warrants to purchase in aggregate 13,600 shares of Common Stock that expires on November 20, 2017 at an exercise price of $0.15 per share (the “2016 Warrants”). Effective with the expiration of the subscription rights all unexercised subscription rights expired.

 

·On June 24, 2015, the Company together with InsPro LLC and Atiam Technologies L. P., which is a wholly owned subsidiary of the Company, (collectively the “InsPro Parties”), advised SVB of their desire to terminate the Amended and Restated Loan and Security Agreement, dated December 2, 2014 (the “Loan Agreement”), between the InsPro Parties and SVB. Prior to June 24, 2015, the InsPro Parties paid off the amount borrowed under the Loan Agreement, and on June 24, 2015 the InsPro Parties paid SVB an early termination fees of $52,500, and SVB released all security interests in the InsPro Parties’ assets.

 

·On January 30, 2015, the Company and InsPro LLC (collectively, the “Borrowers”) issued a Secured Convertible Promissory Note (“Note”) to Co-Investment, a holder of more than 5% of our common stock on an as converted basis, pursuant to a Secured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”). In connection with the Note Purchase Agreement, the Borrowers 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 Borrowers, which is secured by all assets of the Company and InsPro LLC other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (collectively the “Collateral”). Pursuant to the 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 September 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.

 

 17 

 

·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 “Walters Loan”). The Walters Loan 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 Walters Loan 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 Borrowers issued a second Secured Convertible Promissory Note (“The Second Note”) in the amount of $1,000,000 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.

 

·On September 18, 2015, pursuant to a purchase agreement (the “Purchase Agreement”), the Company agreed to sell to certain investors 1,163,141 units (each, a “Unit”) at a per Unit purchase price equal to $3.00. Each Unit sold pursuant to the Purchase Agreement consisted of one share of Series B Preferred Stock and a warrant to purchase ten shares of Common Stock at an initial exercise price of $0.15 per share, subject to adjustment. In connection with the Purchase Agreement the Company:

 

oReceived cash in the amount of $900,000 from certain investors

 

oIssued to Co-Investment Units equal to the outstanding principal and accrued interest owed to Co-Investment under the Note and the Second Note in the exchange for the termination of the Note and the Second Note; and

 

oIssued to Mr. Walters Units equal to the amount owed to Mr. Waters under the Walters Loan in exchange for the termination of the Walters Loan, and refund to Mr. Walters $2.00 that represent fractional shares not issued.

 

·Payments on notes payable pertain to repayment of the borrowed amount under the Loan Agreement with SVB in 2015 and notes payable, which we entered into in order to finance two of the Company’s corporate insurance premiums.

 

·InsPro LLC has entered into various capital lease obligations to purchase equipment used for operations. We acquired computer equipment and software through capital leases at a cost of $232,135 and $164,880 in 2016 and 2015, respectively.

 

Liquidity and Other Considerations

 

As indicated in the accompanying financial statements during the year ended December 31, 2016, the Company’s net loss was $2,667,937 and cash used primarily to fund financing activities resulted in a net decrease in cash of $236,676. As of December 31, 2016, the Company had $3,161,617 of cash, a working capital deficit of $2,648,881 and the Company’s shareholder deficit was $3,789,060. During 2016 the Company implemented cost reduction initiatives, which resulted in the reduction of expenses in 2016 as compared to 2015. During the first quarter of 2017 the Company implemented additional cost reduction initiatives, which management believes will reduce expenses in 2017 as compared to 2016. On March 29, 2017, the Company obtained a $2,000,000 funding commitment from its largest stockholder Co-Investment Fund II, L.P. whereby Co-Investment committed to purchase 1,000,000 shares of the Company’s new series C preferred stock, par value $0.001 per share, (“Series C Preferred Stock”) at a per share purchase price of $2.00 per share for an aggregate purchase price of $2,000,000 (the “Commitment”). The Company anticipates Co-Investment will fulfill the Commitment in April as soon as practical. The Company intends to use the net proceeds of the Commitment for working capital purposes.

The Series C Preferred Stock when issued will be entitled to vote as a single class with the holders of the Company’s common stock, with each share of Series C Preferred Stock having the right to 20 votes. Upon the liquidation, sale or merger of the Company, each share of Series C Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to two and half (2.5) times the Series C Preferred Stock original issue price, subject to certain customary adjustments, or (B) the amount such share of Series C Preferred Stock would receive if it participated pari passu with the holders of common stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series C Preferred stock times $5.00. Each share of Series C Preferred Stock becomes convertible into 20 shares of common stock, subject to adjustment and at the option of the holder of the Series C Preferred Stock. For so long as any shares of Series C Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series C 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 C 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 C Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series C Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series C 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 C Preferred Stock with an amount per share equal to two and a half (2.5) times the Series C Preferred Stock original issue price in aggregate for all issued and outstanding Series C Preferred Stock. 

 18 

 

 

Our liquidity needs for the next twelve months and beyond are principally for the funding of our operations, payments on capital leases and the purchase of property and equipment. Based on the forgoing, management believes the Company has sufficient funds to finance its operations over the next twelve months.

 

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.

 

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

 

As a “smaller reporting company,” we are not required to provide the information required by this Item.

 

 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-2
Consolidated Balance Sheets at December 31, 2016 and December 31, 2015 F-3
Consolidated Statements of Operations for the Years Ended December 31, 2016 and December 31, 2015 F-4
Consolidated Statements of Changes in Shareholders' (Deficit) Equity for the Years Ended December 31, 2016 and December 31, 2015 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and December 31, 2015 F-6
Notes to Consolidated Financial Statements F-7 to F-34

 

 F-1 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors
InsPro Technologies Corporation
Eddystone, Pennsylvania

 

We have audited the accompanying consolidated balance sheets of InsPro Technologies Corporation and Subsidiaries as of December 31, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

 

  /s/ D’Arelli Pruzansky, P.A.  
  Certified Public Accountants  

 

Coconut Creek, Florida
March 30, 2017

 

 F-2 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   December 31, 2016   December 31, 2015 
ASSETS          
           
CURRENT ASSETS:          
Cash  $3,161,617   $3,398,293 
Accounts receivable, net   2,333,817    3,959,437 
Prepaid expenses   225,439    179,700 
Other current assets   30,520    4,954 
Assets of discontinued operations   8,636    15,212 
           
Total current assets   5,760,029    7,557,596 
           
Property and equipment, net   512,960    747,937 
Other assets   -    40,000 
           
Total assets  $6,272,989   $8,345,533 
           
LIABILITIES AND SHAREHOLDERS' DEFICIT          
           
CURRENT LIABILITIES:          
Notes payable  $39,194   $27,474 
Accounts payable   5,460,035    5,410,146 
Accrued expenses   436,516    497,088 
Current portion of capital lease obligations   188,025    227,880 
Deferred revenue   2,285,140    2,680,361 
           
Total current liabilities   8,408,910    8,842,949 
           
LONG TERM LIABILITIES:          
Deferred revenue   1,500,000    2,000,000 
Capital lease obligations   153,139    149,892 
           
Total long term liabilities   1,653,139    2,149,892 
           
Total liabilities   10,062,049    10,992,841 
           
COMMITMENTS AND CONTINGENCIES: (See Note 9)          
           
SHAREHOLDERS' DEFICIT:          
Preferred stock ($.001 par value; 20,000,000 shares authorized)          
Series A convertible preferred stock; 3,437,500 shares designated, 1,276,750 shares issued and outstanding (liquidation value $12,767,500)        2,864,104           2,864,104   
Series B convertible preferred stock; 11,000,000 shares designated, 5,307,212 and 5,305,852 shares issued and outstanding (liquidation value $15,921,636 and $15,917,556)   11,689,019    11,689,018 
          
Common stock ($.001 par value; 500,000,000 shares authorized, 41,543,655 shares issued and outstanding)   41,543    41,543 
Additional paid-in capital   48,268,968    46,742,784 
Accumulated deficit   (66,652,694)   (63,984,757)
           
Total shareholders' deficit   (3,789,060)   (2,647,308)
           
Total liabilities and shareholders' deficit  $6,272,989   $8,345,533 

 

See accompanying notes to consolidated financial statements.

 

 F-3 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   For the Year Ended December 31, 
   2016   2015 
         
Revenues, net of $1,299,963 of stock based fees paid to a client during the year ended December 31, 2016  $21,830,928   $21,377,557 
           
Cost of revenues   19,070,205    21,702,984 
           
Gross profit (loss)   2,760,723    (325,427)
           
Selling, general and administrative expenses   5,473,566    6,099,564 
           
Operating gain (loss) from continuing operations   (2,712,843)   (6,424,991)
           
Other income (expense):          
Gain on the sale of equipment   -    17,738 
Interest expense   (25,249)   (125,012)
           
Total other income (expense)   (25,249)   (107,274)
           
Gain (loss) from continuing operations   (2,738,092)   (6,532,265)
           
Income from discontinued operations   70,155    155,797 
           
Net income (loss)  $(2,667,937)  $(6,376,468)
           
Net income (loss) per common share - basic and diluted:          
Income (loss) from operations  $(0.06)  $(0.15)
Income from discontinued operations   -    - 
Net income (loss) per common share  $(0.06)  $(0.15)
           
Weighted average common shares outstanding - basic and diluted   41,543,655    41,543,655 

 

See accompanying notes to consolidated financial statements.

 

 F-4 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2016 and 2015

 

   Series A Preferred Stock,   Series B Preferred Stock,   Common Stock, $.001             
   $.001 Par Value   $.001 Par Value   Par Value           Total 
   Number of
Shares
   Amount   Number of
Shares
   Amount   Number of
Shares
   Amount   Additional
Paid-in Capital
   Accumulated
Deficit
   Shareholders'
(Deficit)
 
                                     
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)
                                              
Amortization of deferred compensation                                 259,048         259,048 
                                              
Net loss for the period                                      (6,376,468)   (6,376,468)
                                              
Preferred stock and warrants issued in private placements             1,496,474    3,979,099              497,310         4,476,409 
                                              
Fair value of warrant liability whose anti-dilution provisions expired during the period                                 5,760         5,760 
                                              
Warrants issued to executives as compensation                                 51,200         51,200 
                                              
Warrants amended to extend the expiration date issued to an executive as compensation                                 190,492         190,492 
                                              
Balance - December 31, 2015   1,276,750   $2,864,104    5,305,852   $11,689,018    41,543,655   $41,543   $46,742,784   $(63,984,757)  $(2,647,308)
                                              
Amortization of deferred compensation                                 74,762         74,762 
                                              
Net loss for the period                                      (2,667,937)   (2,667,937)
                                              
Preferred stock and warrants issued in rights offering             1,360    1              4,079         4,080 
                                              
Warrants issued to client as compensation                                 1,299,963         1,299,963 
                                              
Warrants amended to extend the expiration date issued to executives as compensation                                 147,380         147,380 
                                              
Balance - December 31, 2016   1,276,750   $2,864,104    5,307,212   $11,689,019    41,543,655   $41,543   $48,268,968   $(66,652,694)  $(3,789,060)

 

See accompanying notes to consolidated financial statements.

 

 F-5 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the Year Ended December 31, 
   2016   2015 
Cash Flows From Operating Activities:          
Net loss  $(2,667,937)  $(6,376,468)
Less: income from discontinued operations   (70,155)   (155,797)
Loss from continuing operations   (2,738,092)   (6,532,265)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   501,463    599,930 
Stock-based compensation   222,142    500,739 
Stock based fees paid to client as a reduction to revenue   1,299,963    - 
(Gain) on the sale of used equipment   -    (17,738)
Changes in assets and liabilities:          
Accounts receivable   1,625,620    (1,714,625)
Prepaid expenses   78,886    141,528 
Other current assets   14,434    (2,158)
Other assets   -    10,000 
Accounts payable   49,889    576,018 
Accrued interest on secured note from related party   -    89,425 
Accrued expenses   (60,572)   123,778 
Deferred revenue   (895,221)   2,428,673 
           
Net cash provided by (used in) continuing operations   98,512    (3,796,695)
Income from discontinued operations   70,155    155,797 
Changes in assets of discontinued operations   6,576    4,571 
Net cash provided by discontinued operations   76,731    160,368 
Net cash provided by (used in) operating activities   175,243    (3,636,327)
           
Cash Flows From Investing Activities:          
Purchase of property and equipment   (34,351)   (139,862)
Proceeds from the sale of equipment   -    79,053 
           
Net cash used in investing activities   (34,351)   (60,809)
           
Cash Flows From Financing Activities:          
Gross proceeds from sale of preferred stock and warrants   4,080    1,899,999 
Fees paid in connection with sale of preferred stock and warrants   -    (13,013)
Payments on notes payable   (112,905)   (521,855)
Gross proceeds from secured note from related party   -    2,000,000 
Gross proceeds loan payable to related party   -    500,000 
Payments on capital leases   (268,743)   (200,703)
           
Net cash (used in) provided by financing activities   (377,568)   3,664,428 
           
Net (decrease) in cash   (236,676)   (32,708)
           
Cash - beginning of the period   3,398,293    3,431,001 
           
Cash - end of the period  $3,161,617   $3,398,293 
           
Supplemental Disclosures of Cash Flow Information          
Cash payments for interest  $25,249   $125,012 
           
Non cash investing and financing activities:          
Acquisition of equipment acquired through capital leases  $232,135   $164,880 
Fair value of warrant liability whose anti-dilution provisions          
expired during the period  $-   $5,760 
Issuance of preferred stock and warrants valued at the amounts owed on          
secured notes plus accrued interest from related party and loan from related party  $-   $2,589,425 

 

See accompanying notes to consolidated financial statements.

 

 F-6 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

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 application service provider (“ASP”) 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. The Company 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 2016 and 2015 include the allowance for doubtful accounts, valuation allowance on deferred tax asset, valuation of stock-based compensation, the useful lives and valuation of property and equipment, and the valuation of deferred revenue.

 

Cash and cash equivalents

 

The Company had no cash equilavents during the two years ended December 31, 2016. 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, 2016 and 2015, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amount of $0 and $140,946, respectively.

 

Fair value of financial instruments

 

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, notes payable and capital lease obligations approximated fair value as of December 31, 2016, and December 31, 2015, because of the relatively short-term maturity of these instruments and their market interest rates.

 

 F-7 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The Company follows Financial Accounting Standards Board (“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.

 

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 CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

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. The Company has not yet filed its tax returns for the tax year ended December 31, 2016. As of December 31, 2016, the tax years ended December 31, 2015, 2014 and 2013 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 2016 and 2015 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,
2016
   December 31,
2015
 
         
Series A convertible preferred stock issued and outstanding   25,535,000    25,535,000 
Series B convertible preferred stock issued and outstanding   106,144,240    106,117,040 
Options to purchase common stock issued and outstanding   4,000,000    2,975,000 
Warrants to purchase common stock issued and outstanding   25,098,330    25,084,730 
Warrants to purchase series A convertible preferred stock, issued and outstanding   7,600,000    7,600,000 
Warrants to purchase series B convertible preferred stock, issued and outstanding   65,000,000    25,000,000 
    233,377,570    192,311,770 

 

Revenue recognition

 

Revenue for the year ended December 31, 2016, include a reduction in the amount of $1,299,963 for stock based fees paid to a client. See Note 6 - Stockholders’ Deficit – Series B Preferred Stock Warrants.

 

The Company 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.

 

The Company’s 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 CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The Company’s 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.

 

The Company’s 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.

 

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.

 

Effective August 18, 2015, the Company entered into a five year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated 3rd party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective clients for their administration of long term care insurance products for an initial fee of $2,500,000 (the “Reseller Fee”). Pursuant to the Reseller Agreement, the Reseller Fee is fully or partially refundable to the Reseller in the event that the Company materially breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation or seeks protection under bankruptcy during the term of the Reseller Agreement (each a “Refund Event”). The Reseller Fee was fully refundable if a Refund Event occurred before August 31, 2016. A Refund Event did not occur as of December 31, 2016, and as a result the Company recognized $500,000 of Reseller Fee as revenue in the year ended December 31, 2016. The Company shall refund the following amounts to the Reseller if a Refund Event occurs between the following dates; $2,000,000 between September 1, 2016 and August 31, 2017, $1,500,000 between September 1, 2017 and August 31, 2018, and $1,000,000 between September 1, 2018 and August 31, 2019. As of December 31, 2016 the Company has recorded the $2,000,000 Reseller Fee in deferred revenue ($500,000 included in short term liabilities and $1,500,000 included in long term liabilities).

 

 F-10 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The unearned portion of the Company’s revenue, which is revenue collected 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 - Revenue Recognition for Discontinued Operations.

 

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, 2016 and 2015, cost of revenues consisted of the following:

 

   For the Year Ended December 31, 
   2016   2015 
         
Compensation, employee benefits and related taxes  $7,519,551   $8,034,470 
Professional fees   10,317,169    11,973,271 
Depreciation   382,876    490,551 
Rent, utilities, telephone and communications   443,348    486,976 
Other cost of revenues   407,261    717,716 
   $19,070,205   $21,702,984 

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses include all selling, marketing, and other expenses not classified as cost of revenues. The following table discloses selling, general and administrative expenses as reported in the statement of operations.

 

   For the Year Ended December 31, 
   2016   2015 
         
Compensation, employee benefits and related taxes  $3,337,346   $3,336,287 
Advertising and other marketing   140,552    148,880 
Depreciation   118,587    109,379 
Rent, utilities, telephone and communications   405,032    364,569 
Professional fees   709,383    927,623 
Other general and administrative   762,666    1,212,826 
   $5,473,566   $6,099,564 

 

Advertising and other marketing

 

Advertising and other marketing costs are expensed as incurred and are reported in selling, general and administrative expenses. See the previous table under selling, general and administrative expenses for advertising and other marketing expenses reported in the statement of operations.

 

 F-11 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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, 2016 and 2015, the Company had $3,195,018 and $3,398,293 of cash in United States bank deposits, of which $500,930 and $500,050 was federally insured and $2,694,088 and $2,898,243 was not federally insured, respectively

 

The following table lists the percentage of the Company’s accounts receivable balance from the Company’s InsPro Enterprise clients representing 10% or more of the accounts receivable balances as of the periods listed below.

 

    December 31, 2016   December 31, 2015
         
Client #1   30%   32%
Client #2   12%   17%
Client #3   13%   13%
Client #4   -   11%

 

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,
    2016   2015
         
Client #1   30%   28%
Client #2   16%   12%
Client #3   14%   -

 

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.

 

 F-12 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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.

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), that outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09 to the beginning of 2018 for public companies, with an option that would permit companies to adopt the standard as early as the original effective date of 2017. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP. ASU 2014-09 may be adopted either retrospectively or on a modified retrospective basis whereby it would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for those contracts. The updated standard is effective for us in the first quarter of 2018 and we do not plan to early adopt. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that all deferred tax liabilities and assets be classified as noncurrent amounts on the balance sheet. ASU 2015-17 will be effective for interim and annuals periods beginning after December 15, 2016 and may be applied prospectively or retrospectively. Early adoption of the standard is permitted. The new standard is effective for the Company at the beginning of fiscal year 2017. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements and do not expect adoption to have a material impact.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), that requires all leases with a term greater than 12 months to be recognized on the balance sheet, while lease expenses would continue to be recognized in the statement of operations in a manner similar to current accounting guidance. The new standard establishes a right-of-use model (ROU) asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. ASU 2016-02 is effective for the Company at the beginning of fiscal year 2019 and early adoption is permitted. Entities must adopt ASU 2016-02 on a modified retrospective basis whereby it would be applied at the beginning of the earliest comparative year. The new standard is effective for us in the first quarter of 2019 and we do not plan to early adopt. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements. Effective December 31, 2016, our only lease with a term greater than 12 months is for our Radnor office, which will expire on March 31, 2017. We believe our current lease for our Eddystone office, which was extended for a 1 year term that expires on January 31, 2018, would continue to be accounted for as an operating lease under the new standard. We may enter into a new lease for office space, which may have a term greater than 12 months, in the future.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for the Company at the beginning of fiscal year 2019. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

 

 F-13 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern”. Under US GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements - Liquidation Basis of Accounting. Even when an entity's liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the provisions in this ASU should be followed to determine whether to disclose information about the relevant conditions and events. ASU No. 2014-15 was effective for us as of December 31, 2016.

 

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting (Topic 718)”, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for the related income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption is permitted. The new standard is effective for the Company at the beginning of fiscal year 2017. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements and do not expect adoption to have a material impact.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230)”, which provides guidance for eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective retrospectively for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted. The new standard is effective for the Company at the beginning of fiscal year 2018. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements and do not expect adoption to have a material impact.

 

Liquidity

 

During the year ended December 31, 2016, the Company’s net loss was $2,667,937 and cash used primarily to fund financing activities resulted in a net decrease in cash of $236,676. As of December 31, 2016, the Company had $3,161,617 of cash, a working capital deficit of $2,648,881 and the Company’s shareholder deficit was $3,789,060. During 2016 the Company implemented cost reduction initiatives, which resulted in the reduction of expenses in 2016 as compared to 2015. During the first quarter of 2017 the Company implemented additional cost reduction initiatives, which management believes will reduce expenses in 2017 as compared to 2016. The Company has obtained a $2,000,000 funding commitment from its largest stockholder Co-Investment Fund II, L.P., which is described in Note 11 – Subsequent Events.

Our liquidity needs for the next twelve months and beyond are principally for the funding of our operations, payments on capital leases and the purchase of property and equipment. Based on the forgoing, management believes the Company has sufficient funds to finance its operations over the next twelve months.

 F-14 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

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.

 

Revenue Recognition for Discontinued Operations

 

Our discontinued operations generate revenue primarily from transition policy commissions pursuant to the client transition agreement and 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, 2016   December 31, 2015 
         
Accounts receivable  $8,636   $15,212 
Net current assets of discontinued operations  $8,636   $15,212 

 

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, 
   2016   2015 
Revenues:        
Commission and other revenue from carriers  $10,016   $18,499 
Transition policy commission pursuant to the Agreement   88,006    165,044 
           
    98,022    183,543 
           
Operating expenses:          
Other general and administrative   27,867    27,746 
           
    27,867    27,746 
           
Income from discontinued operations  $70,155   $155,797 

 

 F-15 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 3 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   Useful
Life
(Years)
  December 31,
2016
   December 31,
2015
 
Computer equipment and software  3  $4,419,412   $4,152,927 
Office equipment  4.6   158,732    158,732 
Office furniture and fixtures  6.7   189,857    189,857 
Leasehold improvements  5.4   94,620    94,620 
       4,862,621    4,596,136 
              
Less accumulated depreciation      (4,349,661)   (3,848,199)
              
      $512,960   $747,937 

 

The following table discloses depreciation expense as reported in the statement of operations.

 

   For the Year Ended December 31, 
   2016   2015 
         
Depreciation included in cost of revenues  $382,876   $490,551 
Depreciation included in selling, general and administrative   118,587    109,379 
Total depreciation  $501,463   $599,930 

 

NOTE 4 – NOTES PAYABLE

 

Notes payable at December 31, 2016, consist of two notes payable for insurance premium financing on two of the Company’s insurance policies. The first note commenced on April 28, 2016, has an annual interest rate of 8.75% and consists of 11 monthly payments of principal and interest of $7,456 per month commencing on May 28, 2016 and ending on March 28, 2017. The second note commenced on May 3, 2016, has an annual interest rate of 7.99% and consists of 11 monthly payments of principal and interest of $4,358 per month commencing on June 3, 2016 and ending on April 3, 2017.

 

Notes payable at December 31, 2015, consist of two notes payable for insurance premium financing on two of the Company’s insurance policies. The first note commenced on April 28, 2015, has an annual interest rate of 7.50% and consists of 11 monthly payments of principal and interest of $7,566 per month commencing on May 28, 2015 and ending on March 28, 2016. The second note commenced on May 3, 2015, has an annual interest rate of 7.99% and consists of 11 monthly payments of principal and interest of $4,396 per month commencing on June 3, 2015 and ending on April 3, 2016.

 

 F-16 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 5 – EQUITY TRANSACTIONS AND LOANS FROM RELATED PARTIES

 

September 2015 Private Placement

 

On September 18, 2015, the Company completed a private placement (the “Private Placement”) with certain accredited investors (collectively the “Investors”), including The Co-Investment Fund II, L.P., which hold more than 5% of our common stock (“Co-Investment”) and Donald Caldwell, who is the CEO and chairman of the board of directors of the Company and managing partner of Co-Investment; Edmond Walters, who is a director of the Company, and Azeez Enterprises, LP, which is affiliated with Michael Azeez, who is a director of the Company, for an aggregate of 1,163,141 shares of our Series B Convertible Preferred Stock and warrants to purchase 11,631,410 shares of our common stock (the “2015 Warrants”). The Company sold to the Investors 1,163,141 units (“Units”) at a per Unit price of $3.00, for an aggregate total investment of $3,489,423, 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 (“Warrant Shares”), subject to adjustment pursuant to the terms of a securities purchase agreement (the “Purchase Agreement”). The Company intends to use the net proceeds of the Private Placement for working capital purposes. See Note 6 - Shareholders’ Deficit – Series B Preferred Stock and Common Stock Warrants. In the Private Placement the Company issued; 696,475 shares of Series B Preferred Stock and a warrant to purchase 6,964,750 shares of our Common Stock to Co-Investment, 166,666 shares of Series B Preferred Stock and a warrant to purchase 1,666,660 shares of our Common Stock to Edmond Walters, 150,000 shares of Series B Preferred Stock and a warrant to purchase 1,500,000 shares of our Common Stock to Azeez Enterprises, and 150,000 shares of Series B Preferred Stock and a warrant to purchase 1,500,000 shares of our Common Stock to an unrelated third party.

 

The Company agreed, pursuant to the terms of the Purchase Agreement, that for a period of 90 days after the effective date (the “Initial Standstill”) of the Purchase Agreement, the Company shall not, subject to certain exceptions, offer, sell, grant any option to purchase, or otherwise dispose of any equity securities or equity equivalent securities, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, capital stock and other securities of the Company. In addition, pursuant to the Purchase Agreement, the Company was permitted to sell up to an additional 1,000,000 Units to Independence Blue Cross within 90 days following the Closing on substantially the same terms and conditions described above and as set forth in the Purchase Agreement.

 

The Purchase Agreement also provides for a customary participation right for the Investors, subject to certain exceptions and limitations, which grants the Investors the right to participate in any future capital raising financings of the Company occurring from the effective date of the Purchase Agreement until 24 months after the effective date of the Purchase Agreement. The Investors may participate in such financings at a level based on the Investors’ ownership percentage of the Company on a fully-diluted basis prior to such financing.

 

Secured Convertible Promissory Note to Co-Investment Fund II, LP.

 

On January 30, 2015, the Company and InsPro LLC issued a Secured Convertible Promissory Note (“Note”) to 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 LLC (collectively the “Borrowers”) 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 LLC, which is secured by all assets of the Company and InsPro LLC other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (“Collateral”). Pursuant to the 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.

 

 F-17 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 5 – EQUITY TRANSACTIONS AND LOANS FROM RELATED PARTIES (continued)

 

Pursuant to the Security Agreement, the Borrowers shall not, without Co-Investment’s prior consent, sell, lease or otherwise dispose of any equipment or fixtures constituting Collateral. In addition, the Borrowers 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 LLC and Atiam Technologies L.P. Pursuant to the Subordination Agreement, Co-Investment agreed, among other things, that all obligations under the Loan Agreement and any other obligations to SVB would be senior to the outstanding indebtedness under the Financing Agreements.

 

On March 27, 2015, the Borrowers issued a second Secured Convertible Promissory Note (the “Second Note”) in the amount of $1,000,000 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.

 

Pursuant to the terms of the Purchase Agreement, the Company and Co-Investment agreed that, effective at the closing of the Private Placement on September 18, 2015, (i) the Note and Second Note (collectively, “Notes”) were amended such that the entire principal amount of the Notes plus accrued interest as of the closing was converted into 696,475 Units that consisted of 696,475 shares of Series B Preferred Stock and a warrant to purchase 6,964,750 shares of our Common Stock , (ii) the Notes were converted in accordance with the terms thereof by the issuance of the Units to Co-Investment under the Purchase Agreement, (iii) all amounts owed to Co-Investment by the Company under borrowings by the Company, whether evidenced orally or in writing, including without limitation, the Notes and any unpaid principal balance, any interest owed and any penalties or additional fees owed to Co-Investment (collectively, “Existing Indebtedness”), was fully paid and satisfied by the Company, and the Existing Indebtedness was cancelled, and (iv) the Notes and any other agreements entered into in connection with the Notes were amended to give effect to the foregoing.

 

Loan Payable to Related Party

 

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 “Walters Loan”). The Walters Loan 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.

 

Pursuant to the terms of the Purchase Agreement, the Company and Edmond Walters agreed that, effective at the closing on September 18, 2015, (i) the Walters Loan was converted by the issuance of the 166,666 Units that consisted of 166,666 shares of Series B Preferred Stock and a warrant to purchase 1,666,660 shares of our Common Stock to Edmond Walters under the Purchase Agreement, (ii) all amounts owed to Edmond Walters by the Company under borrowings by the Company, whether evidenced orally or in writing, including without limitation, the Walters Loan and any unpaid principal balance, any interest owed and any penalties or additional fees owed to Edmond Walters (collectively, “Walters Existing Indebtedness”), was fully paid and satisfied by the Company, and the Walters Existing Indebtedness was cancelled, and (iii) the Walters Loan and any agreements entered into in connection with the Loan were amended to give effect to the foregoing.

 

 F-18 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 5 – EQUITY TRANSACTIONS AND LOANS FROM RELATED PARTIES (continued)

 

IBC Private Placement

 

On October 6, 2015, the Company entered into and completed a private placement (the “IBC Private Placement”) with Independence Blue Cross, LLC, a Pennsylvania limited liability company, which hold more than 5% of our common stock ( “IBC”), for an aggregate of 333,333 shares of its Series B Preferred Stock and a warrant (the “IBC Warrant”) to purchase 3,333,330 shares of the Company’s Common Stock, pursuant to the terms of a securities purchase agreement (the “IBC Purchase Agreement”).

 

Pursuant to the IBC Purchase Agreement, the Company agreed to sell to IBC 333,333 Units in the IBC Private Placement at a per Unit purchase price equal to $3.00. Each Unit sold in the IBC Private Placement consisted of one share of Series B Preferred Stock and an IBC 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 IBC Private Placement were $999,999 and the Company intends to use the net proceeds of the Private Placement for working capital purposes.

 

The Company also agreed, pursuant to the terms of the IBC Purchase Agreement, that for a period of 90 days after the effective date of the Purchase Agreement, the Company shall not, subject to certain exceptions, offer, sell, grant any option to purchase, or otherwise dispose of any equity securities or equity equivalent securities, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, capital stock and other securities of the Company.

 

The IBC 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 from the effective date of the Purchase Agreement until 24 months after the effective date of the Purchase Agreement. IBC 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.

 

NOTE 6 – SHAREHOLDERS’ DEFICIT

 

Common Stock

 

As of December 31, 2016 and 2015, the Company was authorized to issue 500,000,000 shares of common stock with a par value of $0.001 per share (“Common Stock”). As of December 31, 2016 and 2015, the Company had 41,543,655 shares of its Common Stock issued and outstanding.

 

 F-19 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

The Company has reserved shares of Common Stock, on an as-if-converted basis, as follows:

 

   December 31, 2016   December 31, 2015 
         
Exercise of options issued and outstanding to purchase common stock   4,000,000    2,975,000 
Issuance of common shares available under the 2010 Equity Compensation Plan   24,996,980    26,021,980 
Exercise of warrants issued and outstanding to purchase common stock   25,098,330    25,084,730 
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   7,600,000    7,600,000 
Conversion of series B convertible preferred stock issued and outstanding into common stock   106,144,240    106,117,040 
Exercise of warrants to purchase series B convertible preferred stock issued and outstanding and converted into common stock   65,000,000    25,000,000 
           
Total common stock reserved for issuance   258,374,550    218,333,750 

 

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.

 

Series A Convertible Preferred Stock

 

As of December 31, 2016 and 2015, the Company’s board of directors has designated 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, 2016 and 2015, the Company had 1,276,750 shares of its Series A Preferred Stock issued and outstanding. As of December 31, 2016 and 2015, the Company has reserved 380,000 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. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series A Preferred stock times $10.00. 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. 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.

 

 F-20 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

Series B Convertible Preferred Stock

 

As of December 31, 2016 and 2015, the Company’s board of directors has designated 11,000,000 shares of Series B Convertible Preferred Stock with a par value of $0.001 per share (“Series B Preferred Stock”). As of December 31, 2016 and 2015, the Company had 5,307,212 and 5,305,852 of its Series B Preferred Stock issued and outstanding, respectively. As of December 31, 2016 and 2015, the Company has reserved 1,250,000 and 1,170.000 shares of Series B Preferred Stock for the exercise of warrants issued and outstanding to purchase its Series B Preferred Stock, respectively.

 

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 $15,921,636 and $15,917,556 as of December 31, 2016 and 2015, respectively, 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. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series B Preferred stock times $3.00. 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.

 

2015

 

On September 18, 2015, pursuant to the Purchase Agreement, the Company sold to the investors 1,163,141 Units in the Private Placement at a per Unit purchase price equal to $3.00. Each Unit sold in the Private Placement consisted of one share of Series B Preferred Stock and a warrant to purchase ten shares of Common Stock at an initial exercise price of $0.15 per share, subject to adjustment. See Note 5 – Equity Transactions and Loans from Related Parties – September 2015 Private Placement.

 

The Company allocated $364,928 of the $3,489,423 proceeds received as a result of the Private Placement, which represent the fair value of the Warrant Shares, to additional paid in capital using a Black-Scholes option pricing model with the following assumptions: expected volatility of 422%, a risk-free interest rate of 0.10%, an expected term of 2.1 years and 0% dividend yield. The remaining $3,124,495 of the proceeds received was allocated to the Series B Preferred Stock less $13,013 of legal expenses incurred as a result of the September 2015 Private Placement.

 

On October 6, 2015, pursuant to the IBC Purchase Agreement, the Company sold to IBC 333,333 Units in the IBC Private Placement at a per Unit purchase price equal to $3.00. Each Unit sold in the IBC Private Placement consisted of one share of Series B Preferred Stock and a warrant to purchase ten shares of Common Stock at an initial exercise price of $0.15 per share, subject to adjustment. See Note 5 – Equity Transactions and Loans from Related Parties – IBC Private Placement.

 

 F-21 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

The Company allocated $132,382 of the $999,999 proceeds received as a result of the Private Placement, which represent the fair value of the IBC Warrant shares, to additional paid in capital using a Black-Scholes option pricing model with the following assumptions: expected volatility of 397%, a risk-free interest rate of 0.70%, an expected term of 2.1 years and 0% dividend yield. The remaining $867,617 of the proceeds received was allocated to the Series B Preferred Stock.

 

2016

 

On February 2, 2016 the Company filed a registration statement for a rights offering on Form S-1/A, which the Commission declared effective on February 5, 2016, to distribute to shareholders excluding residents of Arizona and California at no charge, one non-transferable subscription right for each 16,615 shares of our Common Stock, 831 shares of our Series A Preferred Stock and 830 shares of our Series B Preferred Stock owned as of January 31, 2016 (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 shareholders’ 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 approximately $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 Private Placement.

 

The basic subscription right entitled the holder to purchase one unit (“Subscription Unit”) at a subscription price of $240. A Subscription Unit consisted of 80 shares of Series B Preferred Stock and a warrant to purchase 800 shares of Common Stock that expires on November 20, 2017 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, 2016, holders of subscription rights exercised in aggregate 17 basic subscription rights and 0 over subscription rights for a total 17 Subscription Units. The Company received $4,080 in gross proceeds as a result of the exercise of Subscription Units. As a result of the exercise of 17 Subscription Units the Company issued effective on March 14, 2016 in aggregate 1,360 shares of Series B Preferred Stock and of warrants to purchase in aggregate 13,600 shares of Common Stock that expires on November 20, 2017 at an exercise price of $0.15 per share (the “2016 Warrants”). Effective with the expiration of the subscription rights all unexercised subscription rights expired.

 

The Company allocated $451 of the $4,080 proceeds received as a result of the rights offering, which represent the fair value of the 2016 Warrants, to additional paid in capital using a Black-Scholes option pricing model with the following assumptions: expected volatility of 259%, a risk-free interest rate of 0.51%, an expected term of 1.7 years and 0% dividend yield. The remaining $3,629 of the proceeds received was allocated to the Series B Preferred Stock.

 

Stock Options

 

2015

 

During 2015, options to purchase 4,450,000 shares of the Company’s Common Stock, which were previously granted to directors and current and former employees of the Company, expired in accordance with the terms of such options.

 

 F-22 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

On March 27, 2015, the Company granted to an executive of the Company an option to purchase a total of 200,000 shares of the Company’s Common Stock, which vests as follows: 66,666 shares of Common Stock on March 27, 2016 and 66,667 shares of Common Stock on March 27 of each of 2017 and 2018. This option has a five year term and an exercise price of $0.10 per share, which exceeded the $0.067 closing price of one share of the Company’s Common Stock as quoted on the OTCBB on March 27, 2015. The fair value of the option granted was estimated on the date of the grant to be $14,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 792%, risk-free interest rate: 0.12%, 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 $3,565 in the year ended December 31, 2015.

 

On November 13, 2015, the Company granted to an executive of the Company an option to purchase a total of 500,000 shares of the Company’s Common Stock, which vests as follows: 125,000 shares of Common Stock on March 13 of each year from 2016 through 2018. This option has a five year term and an exercise price of $0.10 per share, which exceeded the $0.032 closing price of one share of the Company’s Common Stock as quoted on the OTCBB on November 13, 2015. The fair value of the option granted was estimated on the date of the grant to be $16,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 778%, risk-free interest rate: 0.3%, 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 $1,600 in the year ended December 31, 2015.

 

The Company recorded compensation expense pertaining to employee stock options and warrants in salaries, commission and related taxes of $500,739 for the year ended December 31, 2015, which included $125,667 of expense pertaining to stock options, $133,381 of expense pertaining to warrants to purchase Series A Preferred Stock, $51,200 of expense pertaining to warrants to purchase Series B Preferred Stock, and $190,491 of expense pertaining to an amended and restated warrant to purchase Series A Preferred Stock. See Note 6 – Stockholders Deficit – Series A Preferred Stock warrants and Series B Preferred Stock warrants.

 

2016

 

On March 31, 2016, the Company granted two executives of the Company options to purchase a total of 1,000,000 shares of the Company’s Common Stock, which vest as follows: 250,000 shares of Common Stock on March 31 of each year from 2017 to 2020. Such options have a five year term and an exercise price of $0.10 per share, which exceeded the $0.04 closing price of one share of the Company’s Common Stock as quoted on the OTCBB on March 31, 2016. The fair value of the options granted was estimated on the date of the grant to be $40,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 724%, risk-free interest rate: 0.38%, 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 these options in salaries, commission and related taxes of $7,500 in the year ended December 31, 2016.

 

On May 20, 2016, the Company granted to an executive of the Company options to purchase a total of 500,000 shares of the Company’s Common Stock, which vest as follows: 125,000 shares of Common Stock on May 20 of each year from 2017 to 2020. Such options have a five year term and an exercise price of $0.10 per share, which exceeded the $0.04 closing price of one share of the Company’s Common Stock as quoted on the OTCBB on May 20, 2016. The fair value of the options granted was estimated on the date of the grant to be $16,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 710%, risk-free interest rate: 0.32%, 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 these options in salaries, commission and related taxes of $2,664 in the year ended December 31, 2016.

 

 F-23 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

During the year ended December 31, 2016, 475,000 options, which were previously granted to directors and a former employee of the Company, expired in accordance with the terms of such stock options.

 

The Company recorded compensation expense pertaining to employee stock options and warrants in the amount of $222,142 for the year ended December 31, 2016, which included $74,762 of expense pertaining to stock options and $147,380 of expense pertaining to the amendment of warrants to purchase Series A Preferred Stock. See Note 6 – Stockholders Deficit – Series A Preferred Stock Warrants.

 

The value of equity compensation expense not yet expensed pertaining to unvested equity compensation was $138,694 as of December 31, 2016, which will be recognized over a weighted average 2.6 years in the future.

 

As of December 31, 2016, there were 30,000,000 shares of our Common Stock authorized to be issued under the 2010 Equity Compensation Plan, of which 24,996,980 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, 2016 and 2015 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, 2014   6,725,000   $0.46   $0.30    1.66   $- 
                          
For the period ended December 31, 2015                         
Granted   700,000    0.10    0.07           
Exercised   -    -    -           
Expired   (4,450,000)   0.10    0.10           
                          
Outstanding at December 31, 2015   2,975,000    0.90    0.54    2.53    0.00 
                          
For the period ended December 31, 2016                         
Granted   1,500,000    0.10    0.04           
Exercised   -    -    -           
Expired   (475,000)   3.58    2.94           
                          
Outstanding at December 31, 2016   4,000,000   $0.10   $0.06    -   $- 
                          
Outstanding and exercisable at December 31, 2016   1,516,666   $0.10   $0.10    3.44   $- 

 

(1)The aggregate intrinsic value is based on the $0.0375 closing price as of December 31, 2016 for the Company’s Common Stock.

 

Common Stock Warrants

 

2015

 

During 2015, warrants to purchase 35,353,790 shares of the Company’s Common Stock expired in accordance with the terms of such warrants.

 

 F-24 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

The 2015 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) and (ii) November 20, 2017, to acquire up to a total of 11,631,410 shares of Common Stock of the Company upon the payment of $0.15 per Share (the “Exercise Price”). See Note 5 – Equity Transactions and Loans from Related Parties – September 2015 Private Placement.

 

The IBC Warrant provides 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 and (ii) November 20, 2017, to acquire up to a total of 3,333,330 shares of Common Stock of the Company (each an “IBC Warrant Share”) upon the payment of $0.15 per Warrant Share (the “Exercise Price”). The Company also has the right upon a Call Event to call the outstanding IBC Warrant, in which case such IBC Warrant will expire if not exercised within ten business days thereafter. See Note 5 – Equity Transactions and Loans from Related Parties – IBC Private Placement.

 

The Company also has the right, at any point after which the volume weighted average trading price per share of the Common 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 (a “Call Event”), to call the outstanding 2015 Warrants and IBC Warrant, in which case such 2015 Warrants and IBC Warrant will expire if not exercised within ten business days thereafter.

 

The Company determined the 2015 Warrants and the IBC Warrant qualify for a scope exception under ASC 815 as they were determined to be indexed to the Company’s stock.

 

2016

 

On March 14, 2016, the 2016 Warrants were issued in connection with the rights offering. See Note 6 – Stockholders Deficit – Series B Convertible Preferred Stock. The Company determined the 2016 Warrants qualify for a scope exception under ASC 815 as they were determined to be indexed to the Company’s stock.

 

A summary of the status of the Company's outstanding common stock warrants as of and for the years ended December 31, 2016 and 2015 are as follows:

 

       Weighted 
   Common   Average 
   Stock   Exercise 
   Warrants   Price 
         
Outstanding and exercisable at December 31, 2014   45,473,780   $0.15 
           
For the year ended December 31, 2015          
Issued   14,964,740    0.15 
Exercised   -    - 
Expired   (35,353,790)   0.15 
Outstanding and exercisable at December 31, 2015   25,084,730    0.15 
           
For the year ended December 31, 2016          
Issued   13,600    0.15 
Exercised   -    - 
Expired   -    - 
Outstanding and exercisable at December 31, 2016   25,098,330   $0.15 

 

Outstanding common stock warrants at December 31, 2016, have a weighted average remaining contractual life of 0.9 years.

 

 F-25 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

Series A Preferred Stock warrants

 

2015

 

On March 27, 2015, the Company granted to two executives of the Company warrants to purchase a total of 160,000 shares of the Company’s Series A Preferred Stock, which in total vests as follows: 40,000 shares of Series A Preferred Stock on March 27 of each year from 2016 through 2019. These warrants each have a five year term and an exercise price of $4.00 per share. The fair value of these warrants granted were estimated on the date of the grant to be $224,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 768%, risk-free interest rate: 0.12%, expected life in years: 5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. During the year ended December 31, 2015, one of the two executives resigned and warrants to purchase a total of 80,000 shares of the Company’s Series A Preferred Stock expired in accordance with the terms of such warrants. The Company recorded compensation expense pertaining to these warrants in salaries, commission and related taxes of $133,381 in the year ended December 31, 2015.

 

2016

 

On March 31, 2016, the Company amended and restated a warrant to purchase a total of 150,000 shares of the Company’s Series A Preferred Stock originally granted to Mr. Robert J. Oakes on August 18, 2010, and also amended and restated a warrant to purchase a total of 150,000 shares of the Company’s Series A Preferred Stock originally granted to Mr. Anthony R. Verdi on September 14, 2011 (collectively the “Original Warrants”). Immediately prior to March 31, 2016, the Original Warrants had an expiration date of September 14, 2016 and the Original Warrants were amended and restated to have an expiration date of September 14, 2017 (as amended, the “Amended and Restated Warrants”). The Amended and Restated Warrants are fully exercisable and have an exercise price of $4.00 per share. The fair value of the amendment to the Amended and Restated Warrants was estimated on the date of the amendment to be the difference between the value of the Amended and Restated Warrants immediately before and after the change in the expiration date. The fair value of the Amended and Restated Warrants was estimated on the date of the amendment before the change in the expiration date to be $2,224 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 111%, risk-free interest rate: 0.38%, expected life in years: 0.5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. The fair value of the Amended and Restated Warrants was estimated on the date of the amendment after the change in the expiration date to be $149,605 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 263%, risk-free interest rate: 0.38%, expected life in years: 1.5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to the Amended and Restated Warrant in salaries, commission and related taxes of $147,380 in the year ended December 31, 2016.

 

Outstanding warrants to purchase the Company’s Series A Preferred Stock at December 31, 2016, have a remaining contractual life of 0.7 years.

 

 F-26 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

A summary of the status of the Company's outstanding Series A Preferred Stock warrants as of and for the years ended December 31, 2016 and 2015 are as follows:

 

       Weighted 
   Preferred   Average 
   Stock   Exercise 
   Warrants   Price 
         
Outstanding and exercisable at December 31, 2014   300,000   $4.00 
           
For the year ended December 31, 2015          
Granted   160,000    4.00 
Exercised   -    - 
Expired   (80,000)   - 
Outstanding and exercisable at December 31, 2015   380,000    4.00 
           
For the year ended December 31, 2016          
Granted   -    - 
Exercised   -    - 
Expired   -    - 
Outstanding and exercisable at December 31, 2016   380,000   $4.00 

 

Series B Preferred Stock Warrants

 

2015

 

On November 13, 2015, the Company granted to two executives of the Company warrants to purchase a total of 80,000 shares of the Company’s Series B Preferred Stock, which were immediately exercisable. These warrants each have a five year term and an exercise price of $3.00 per share. The fair value of these warrants granted were estimated on the date of the grant to be $51,200 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 778%, risk-free interest rate: 0.3%, expected life in years: 5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to these warrants in salaries, commission and related taxes of $51,200 in the year ended December 31, 2015.

 

2016

 

On April 4, 2016, the Company entered into an agreement with an existing client, which among other things, included a provision that the Company issue a warrant to the client to purchase 2,000,000 shares of the Company’s Series B Preferred Stock, which is immediately exercisable (the “2016 Series B Warrants”). The 2016 Series B Warrants have a three year term, a cashless exercise provision and an exercise price of $3.00 per share. On May 4, 2016 the Company issued the 2016 Series B Warrant to the client. The fair value of the 2016 Series B Warrants was estimated on April 4, 2016, which was the date of the agreement with the client, to be $1,299,963 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 503%, risk-free interest rate: 0.38%, expected life in years: 3 based on the contract life of the 2016 Series B Warrants, and assumed dividend yield: 0%. The Company determined the 2016 Series B Warrants qualify for a scope exception under ASC 815 as they were determined to be indexed to the Company’s stock. The Company recorded the fair value of the 2016 Series B Warrant as an increase to additional paid in capital and a reduction to revenue in the nine months ended September 30, 2016, in the amount of $1,299,963.

 

Outstanding Series B Warrants at December 31, 2016, have a remaining contractual life of 2.5 years.

 

 F-27 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

A summary of the status of the Company's outstanding Series B Warrants as of and for the period ended December 31, 2016, are as follows:

 

       Weighted 
   Preferred   Average 
   Stock   Exercise 
   Warrants   Price 
         
Outstanding and exercisable at December 31, 2014   1,170,000   $3.00 
           
For the year ended December 31, 2015          
Granted   80,000    3.00 
Exercised   -    - 
Expired   -    - 
Outstanding and exercisable at December 31, 2015   1,250,000   $3.00 
           
For the year ended December 31, 2016          
Granted   2,000,000    3.00 
Exercised   -    - 
Expired   -    - 
Outstanding and exercisable at December 31, 2016   3,250,000   $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-28 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 6 – SHAREHOLDERS’ DEFICIT (continued)

 

In connection with the Company’s 2009 private placement, the Company and the participating 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 2013 Private Placement, the Private Placement and the IBC Private Placement, the Company and the participating investors also entered into registration rights agreements, in substantially the same form as the 2010 Registration Rights Agreement.

 

As of December 31, 2016, the Company has not received a demand notice in connection with any registration rights agreement. At December 31, 2016, 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, 2016.

 

 F-29 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 7 – CAPITAL LEASE OBLIGATIONS

 

InsPro LLC has entered into several capital lease obligations to purchase equipment used for operations. InsPro LLC has the option to purchase the equipment at the end of the lease agreements 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, 2016 and 2015:

 

      December 31, 2016   December 31, 2015 
   Useful Life (Years)        
Computer equipment and software  3  $1,576,226   $1,344,091 
Phone System  3   15,011    15,011 
       1,591,237    1,359,102 
Less accumulated depreciation      (1,260,944)   (990,007)
      $330,293   $369,095 

 

Future minimum payments required under capital leases at December 31, 2016 are as follows:

 

2017  $203,110 
2018   130,693 
2019   30,307 
      
Total future payments   364,110 
Less amount representing interest   22,946 
      
Present value of future minimum payments   341,164 
Less current portion   188,025 
      
Long-term portion  $153,139 

 

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 $79,080 and $82,462 for the years ended December 31, 2016 and 2015, respectively.

 

 F-30 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

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 through January 26, 2015.

 

Mr. Verdi’s amended and restated employment agreement automatically renewed for a one year term on March 31, 2015, 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 and again increased to $300,000 effective November 1, 2015. 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.

 

Pursuant to an amended and restated written employment agreement with InsPro LLC, Mr. Robert J. Oakes serves as Vice Chairman of the board of directors. 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 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 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 the Company. Mr. Oakes employment agreement was automatically extended for an additional one year term on March 25, 2016 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.

 

 F-31 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

 

As of December 31, 2016, the Company has employment agreements with the Chief Revenue Officer, which commenced in 2016 for a one year term that will automatically renew for a one year term in 2017, and four vice presidents of the Company, which automatically renewed each for a one year term in 2016. These employment agreements provide that these executives will be compensated at an aggregate annual base salary of $1,011,000 with bonus compensation at the discretion of the Company’s board of directors. 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. In the event of termination without cause or for good reason, these 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 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, which is March 31, 2017. 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 $7,564 as of December 31, 2016, which is included in accrued liabilities on the consolidated balance sheet.

 

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 $30,000 as of December 31, 2016.

 

On September 14, 2007, InsPro LLC 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 (as amended the “BPG Lease”). The original term of the lease commenced on October 1, 2007 and expired 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.

 

 F-32 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

 

On March 15, 2012, InsPro LLC 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. Effective April 1, 2015, InsPro LLC and BPG agreed to amend the BPG Lease to lease 6,810 square feet of furnished office space from BPG on another floor of the same building. The Company’s 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 increased to $25,619 per month February 1, 2013 through January 31, 2014, increased to $26,351 per month February 1, 2014 through January 31, 2015, increased to $27,082 per month February 1, 2015 through March 31, 2015, increased to $37,082 through January 31, 2016, will increase to $37,814 per month February 1, 2016 through March 31, 2016, and will decrease to $27,814 per month from April 1, 2016 through January 31, 2017. On June 9, 2016, InsPro LLC and BPG entered into a sixth amendment to the Lease Agreement whereby InsPro LLC and BPG agreed to amend the Lease Agreement to extend the term through January 31, 2018 for 17,567 of rentable square feet at a monthly cost of $28,546 for the period February 1, 2017 through January 31, 2018.

 

The Company leases certain real and personal property under non-cancelable operating leases. Rent expense was $613,250 and $664,995 for the years ended December 31, 2016 and 2015, respectively.

 

Future minimum payments required under operating leases and service agreements at December 31, 2016 are as follows:

 

2017  $638,946 
2018   257,591 
2019   225,108 
thereafter   - 
      
Total  $1,121,645 

 

NOTE 10 - INCOME TAXES

 

The Company has net operating loss carry forwards for federal income tax purposes of approximately $50,600,000 at December 31, 2016, the unused portion of which expires in years 2026 through 2036. 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.

 

 F-33 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 and 2015

 

NOTE 10 - INCOME TAXES (continued)

 

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, 2016 and 2015:

 

   2016   2015 
         
Computed "expected" expense (benefit)  $(933,778)  $(2,231,764)
State tax expense (benefit), net of federal effect   (80,038)   (191,294)
Amortization/impairment of acquisition related assets   (5,002)   (5,002)
Stock based compensation   84,414    190,281 
Stock based fees paid to client   493,986    - 
Other permanent differences   14,917    5,995 
Increase in valuation allowance   425,501    2,231,784 
   $-   $- 

 

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, 2016 and 2015 were as follows:

 

   2016   2015 
         
Deferred tax assets:          
Net operating loss carry forward  $19,227,610   $18,868,252 
Depreciation   88,909    52,177 
Compensation expense   64,230    61,683 
Deferred revenue   686,297    648,288 
    All Miscellaneous Other   2,874    14,019 
Total deferred tax asset   20,069,920    19,644,419 
           
Deferred tax liabilities   -    - 
Net deferred tax asset   20,069,920    19,644,419 
Less: valuation allowance   (20,069,920)   (19,644,419)
   $-   $- 

 

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 $425,501 from the prior year.

 

NOTE 11 – SUBSEQUENT EVENTS

Co-Investment $2,000,000 funding Commitment

On March 29, 2017, Co-Investment provided the Company with a funding commitment letter (the “Commitment Letter”) whereby Co-Investment committed to purchase 1,000,000 shares of the Company’s new series C preferred stock, par value $0.001 per share, (“Series C Preferred Stock”) at a per share purchase price of $2.00 per share for an aggregate purchase price of $2,000,000 (the “Commitment”). The Company anticipates Co-Investment will fulfill the Commitment in April as soon as practical. The Company intends to use the net proceeds of the Commitment for working capital purposes.

The Series C Preferred Stock will be entitled to vote as a single class with the holders of the Company’s common stock, with each share of Series C Preferred Stock having the right to 20 votes. Upon the liquidation, sale or merger of the Company, each share of Series C Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to two and half (2.5) times the Series C Preferred Stock original issue price, subject to certain customary adjustments, or (B) the amount such share of Series C Preferred Stock would receive if it participated pari passu with the holders of common stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series C Preferred stock times $5.00. Each share of Series C Preferred Stock becomes convertible into 20 shares of common stock, subject to adjustment and at the option of the holder of the Series C Preferred Stock. For so long as any shares of Series C Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series C 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 C 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 C Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series C Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series C 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 C Preferred Stock with an amount per share equal to two and a half (2.5) times the Series C Preferred Stock original issue price in aggregate for all issued and outstanding Series C Preferred Stock. 

 F-34 

 

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 have concluded that our disclosure controls and procedures were effective for their intended purposes as of December 31, 2016.

 

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, 2016 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, 2016.

 

Changes in internal control over financial reporting.

 

There were no changes in the Company’s internal control over financial reporting during the quarter and year ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

Item 9B. OTHER INFORMATION.

 

NONE.

 

 20 

 

PART III

 

Item 10. Directors, executive officers and corporate governance.

 

Directors of the Registrant

 

Michael Azeez, 59, 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, 70, has served as one of our directors and as one of the Co-Chairmen 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 since January 26, 2015. Mr. Caldwell founded Cross Atlantic in 1999, and presently serves as its Chairman and Chief Executive Officer and serves on its Audit and Nominating and Governance committees. He has served as a director at Rubicon Technology, Inc. since 2001 and chairs its Compensation Committee. He served on the board of directors at Diamond Management & Technology Consultants, Inc. (NASDAQ) from 1994 until its sale to PriceWaterhouse in 2010 and served as a member of its Compensation Committee, Audit Committee and as the lead Director since 2006. Mr. Caldwell has been a director of Quaker Chemical Corporation (NYSE:KWR), a provider of process chemicals and chemical specialties, since 1997 and was appointed as lead director in May 2016. He also serves as Chairman of Quaker’s Executive Committee and a member of its Compensation and Audit Committees. He is a member of the Compensation Committee and a director 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 was a director of Amber Road, Inc. (NYSE:AMBR) and served on the Nominating and Governance Committee and Compensation Committee from 2005 until his resignation on December 31, 2016. Mr. Caldwell was a director and member of the Risk Management Committee and Chairman of the Audit Committee of Fox Chase Bancorp, Inc. (NASDAQ:FXCB), a stock holding company of Fox Chase Bank, from October 2014 until it was acquired by Univest Corporation of Pennsylvania on July 1, 2016. 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, 73, 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.

 

 21 

 

Kenneth M. Harvey, 56, 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. Since 2012, Mr. Harvey served as a Director of CLS Group Holdings AG. From 2012 to 2014 he was the Chairman of the Technology and Operations Committee and from 2014 Mr. Harvey has served as Chairman of the Board and a member of the Chairman’s Committee, which serves as the Compensation and Compliance Committees. Mr. Harvey also serves on the Senior Advisory Board of Oliver Wyman; a global management consulting firm. 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, 64, has served as a director since June 2014. Mr. Krigstein was 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 from 2009 through 2017. 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, 58, 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, LLC 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, 59, has served as one of our directors since April 2006. Mr. Rich is currently the Executive Director at New York City Board of Education Retirement System since January 2016.  Mr. Rich was Chief of Negotiations and Restructuring at the Pension Benefit Guaranty Corporation, a U.S. government agency, from November 2012 to January 2016. 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 Commission 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.

 

L.J. Rowell, 84, 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.

 

 22 

 

Paul Soltoff, 62, has served as one of our directors since November 2005. He is currently Managing Partner of RobPet, LLC since 2015, and Managing Partner of Paul Soltoff Advisors, LLC since 2016. 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.

 

Frederick C. Tecce, 80, has served as one of our directors since August 2016 and he previously served as one of our directors from August 2, 2007 through August 14. 2012. He has also served on the board of several publicly traded companies as well as numerous privately held companies. In addition, he served on the Board of Independence Blue Cross for 2 different terms. On a day to day basis, he serves as Of Counsel to the law firm of Buchanan Ingersoll and Rooney as well as being Of Counsel and Partner to Cross Atlantic Capital Partners. In addition to his pursuits in the private sector, Mr. Tecce has also served in the public sector where he was appointed by Pennsylvania Governor Tom Ridge to serve on the transition team. His board experience includes being an active member of the Board of the $50 billion Public School Employees Retirement Systems (PSERS), where he held the title of chairman of the Finance Committee for 6 years until his retirement in 2001. Mr. Tecce also served in the federal sector as a member of the Federal Judicial Nominating Committee. He has served in a management position in several for-profit businesses, some of which he has founded. Mr. Tecce’s numerous legal, business and government experiences qualify him to be a member of our board of directors.

 

Anthony R. Verdi, 68, 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, 55, has served as one of our directors since April 2008. Mr. Walters is Founder and was the 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.

 

 23 

 

The Board has determined that Messrs. Azeez, Harrison, Harvey, Krigstein, Rich, Rowell, Soltoff, Tecce 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 or who have served as our executive officers during 2016. Our executive officers are appointed by, and serve at the discretion of, our board of directors.

 

Name   Age   Position
Donald R. Caldwell   70   Principal Executive Officer and Chairman of the board of directors of InsPro Technologies Corporation and InsPro Technologies, LLC
Mark Daley   63   Chief Revenue Officer of InsPro Technologies, LLC
Anthony R. Verdi   68   Chief Financial Officer, Chief Operating Officer and Assistant Secretary
Robert J. Oakes   58   Vice Chairman of the board of directors InsPro Technologies Corporation

 

Donald R. Caldwell 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 since January 26, 2015. Mr. Caldwell founded Cross Atlantic 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 served as our Chief Revenue Officer from June 2014 through March 2017. 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.

 

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.

 

 24 

 

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.

 

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, 1510 Chester Pike, 400 Baldwin Tower, Eddystone, Pennsylvania 19022.

 

Corporate Governance and Committees

 

Our board of directors currently is composed of Messrs. Azeez, Caldwell, Harrison, Harvey, Krigstein, Oakes, Rich, Rowell, Soltoff, Tecce, 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. Rich became chairman of the committee effective upon his appointment by the board on January 26, 2015. Mr. Caldwell became chairman of the committee effective upon his appointment to the board on April 1, 2008 through January 26, 2015. Our board of directors has determined that Mr. Rich 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”.

 

 25 

 

Compensation Committee

 

The members of our compensation committee are Messrs. Harrison, Rich and Tecce. Mr. Harrison chairs the committee.

 

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, 1510 Chester Pike, 400 Baldwin Tower, Eddystone, Pennsylvania 19022.

 

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.

 

 26 

 

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, 2016 and 2015 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 2016 and 2015. 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, 2016 and December 31, 2015.

 

Name and Principal Position  Fiscal
Year
  Salary ($)   Bonus ($)
(6)
   Stock
Awards
($)
   Option
Awards ($)
(7)
   All Other
Compensation
($) (8)
   Total ($) 
                            
Donald R. Caldwell (1)  2016   1    -    -    -    9,370    9,371 
Chief Executive Officer,  2015   1    -    -    -    9,669    9,670 
Chairman of the Board of Directors                                 
                                  
Anthony R. Verdi (2)  2016   300,000    -    -    -    16,296    316,296 
Chief Executive Officer,  2015   258,333    -    -    -    16,331    274,664 
Chief Financial Officer & Chief Operating Officer                                 
                                 
                                  
Robert J. Oakes (3)  2016   300,000    50,000    -    -    18,764    368,764 
President & Chief Executive Officer of InsPro Technologies, LLC  2015   300,000    -    -    -    16,416    316,416 
                                  
Mark Daley (4)  2016   250,000    -    -    -    6,894    256,894 
Chief Revenue Officer of  2015   245,833    50,000    -    112,000    7,986    415,819 
InsPro Technologies, LLC                                 
                                  
John Keddy (5)  2016   -    -    -    -    -    - 
Chief Information Officer of  2015   140,477    -    -    112,000    15,770    268,247 
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’s compensation received in 2014 was that of a non-employee director and is included in the tables and disclosures with all other non employee directors. Mr. Caldwell has assigned all of his compensation to the Co-Investment Fund II, L.P.

 

(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 and effective January 26, 2015 serves as Chief Financial Officer.

 

(3)            Mr. Oakes was appointed as President of our subsidiary InsPro Technologies, LLC on October 1, 2007 concurrently with the closing of our acquisition of InsPro and effective January 26, 2015 serves as Vice Chairman of our board of directors.

 

(4)            Mr. Daley was appointed Chief Revenue Officer of our subsidiary InsPro Technologies, LLC on June 2, 2014. Mr. Daley’s employment terminated effective March 8, 2017, and all amounts owed to Mr. Daley pursuant to his employment agreement will be paid to him during 2017.

 

 27 

 

(5)            Mr. Keddy was appointed Chief Information Officer of our subsidiary InsPro Technologies, LLC on September 24, 2014. Mr. Keddy resigned effective July 17, 2015, and all amounts owed to Mr. Keddy pursuant to his employment agreement were paid to him.

 

(6)            Mr. Daley received variable compensation based on license fee revenue recognized in accordance with his variable compensation arrangement. Mr. Oakes received a one-time discretionary bonus.

 

(7)            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.

 

Name  Fiscal Year  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
 
                                        
Donald R. Caldwell  2016   -    -    -    -    -    -    -    -    - 
   2015   -    -    -    -    -    -    -    -    - 
                                                 
Anthony R. Verdi  2016   -    -    -    -    -    -    -    -    - 
   2015   -    -    -    -    -    -    -    -    - 
                                                 
Robert J. Oakes  2016   -    -    -    -    -    -    -    -    - 
   2015   -    -    -    -    -    -    -    -    - 
                                                 
Mark Daley (a)  2016   -    -    -    -    -    -    -    -    - 
   2015   112,000    80,000   $4.000    1.400    3/27/2015    779%   0.120%   5.0    0.0%
                                                 
John Keddy (a)  2016   -    -    -    -    -    -    -    -    - 
   2015   112,000    80,000   $4.000    1.400    3/27/2015    779%   0.120%   5.0    0.0%

 

(a)              On March 27, 2015, the board of directors of the Company granted warrants to purchase 80,000 shares of Series A Preferred Stock at an exercise price equal to $4.00 per share to Messrs. Daley and Keddy. The warrants are immediately exercisable, non transferrable and expire on May 22, 2019, however the warrants to Mr. Keddy expired in 2015 and the warrants to Mr. Daley will expire in 2017 as a result of the termination of their employment in accordance with the terms of the warrants.

 

(8)              All other compensation paid to our named executive officers in the fiscal year ended December 31, 2016 consisted of the following:

 

Name  Payments for
Auto and
Equipment ($) (a)
   Company Paid
Health, Life and
Disabilitly
Insurance ($) (b)
   Company
Matching of
Employee
401(k)
Contributions
(c)
   Board of
Directors
Meeting Fees (d)
   Total ($) 
                     
Donald R. Caldwell   -    -    -    9,370    9,370 
                          
Anthony R. Verdi   13,200    619    2,477    -    16,296 
                          
Robert J. Oakes   1,200    14,914    2,650    -    18,764 
                          
Mark Daley   1,200    3,182    2,512    -    6,894 
                          
John Keddy   -    -    -    -    - 

 

(a)              Payments for auto and equipment represent monthly allowances for auto, cell phones and other equipment.

 

 28 

 

(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 approximately 71% of the health insurance and 100% of the life and disability insurance premiums for the named executive officers. Health insurance premiums vary based on several factors, including the coverage selected and 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. Daley, Verdi and Oakes and unvested for Mr. Keddy.

 

(d)              Mr. Caldwell received board and committee meeting fees at the rates specified in the Company’s non employee director compensation plan. Mr. Caldwell has assigned all of his compensation to the Co-Investment Fund II, L.P.

 

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, 2016. There have been no stock awards granted. The information below pertains to stock options, which were granted under the 2010 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, 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, 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, and a warrant to purchase 80,000 shares of the Company’s Series A Convertible Preferred Stock, which was issued to Mr. Daley on March 27, 2015.

 

   Option Awards 
     
Name 

Number of

Securities

Underlying

Unexercised

Options

(#)

  

Number of

Securities

Underlying

Unexercised

Options

(#)

  

Equity

Incentive

Plan Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

  

Option

Exercise

Price

($)

  

Option

Expiration

Date

 
   Exercisable   Unexercisable             
                     
Donald R. Caldwell   -    -    -    -    - 
                          
Anthony R. Verdi   300,000    -    -    3.00    5/22/2019 
    150,000    -    -    4.00    9/14/2017 
                          
Robert J. Oakes   300,000    -    -    3.00    5/22/2019 
    150,000    -    -    4.00    9/14/2017 
                          
Mark Daley   600,000    1,200,000    -    -    8/19/2019 
    -    80,000    -    4.00    3/27/2020 
                          
John Keddy   -    -    -    -    - 

 

 29 

 

Compensation Committee Interlocks and Insider Participation

 

No members of our compensation committee are currently, or have been, employed by us as officers or employees. None of our executive officers currently serve, or in the past three years have served, as a member of the board of directors, compensation committee or other board committee performing equivalent functions of another entity that has one or more executive officers serving on our board or compensation committee.

 

Employment, Severance and Other Agreements

 

Donald R. Caldwell

 

Our board of directors appointed Mr. Caldwell Chief Executive Officer and Chairman of our board of directors on January 26, 2015, with an annual salary of $1. Mr. Caldwell is employed as an at-will employee.

 

Anthony R. Verdi

 

Pursuant to an amended and restated employment agreement Mr. Verdi 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, 2016, 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 and increased to $300,000 effective November 1, 2015. 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.

 

Robert J. Oakes

 

Pursuant to an amended and restated employment agreement with InsPro Technologies, LLC, Mr. Oakes serves as Vice Chairman of the board of directors. 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 the Company. Mr. Oakes employment agreement was automatically extended for an additional one year term on March 25, 2014 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.

 

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Mark Daley

 

Mr. Daley served as InsPro Technologies, LLC’s Chief Revenue Officer from June 2, 2014 until March 8, 2017. His employment agreement commenced for a one year term on November 15, 2015, was automatically renewed on November 15, 2016, and was terminated effective March 8, 2017. His annual base salary was $200,000 per year from June 2, 2014 through January 31, 2015 and was then increased by the board of directors to $250,000 effective February 1, 2015. Pursuant to his employment agreement, his annual base salary was $250,000 per year.

 

As a result of Mr. Daley’s termination without cause or for good reason, he or his estate will receive his then current base annual salary, plus unpaid accrued employee benefits, which is primarily accrued vacation, for a period of six months, less all applicable taxes during 2017.

 

Mr. Daley was entitled to variable incentive compensation based on a percentage of new sales pursuant to a written variable compensation arrangement with InsPro Technologies, LLC.

 

Pursuant to Mr. Daley’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 six months following his termination.

 

John Keddy

 

Pursuant to an 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. Mr. Keddy resigned effective July 17, 2015.

 

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.

 

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.

 

 31 

 

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, 2016. There were no option awards and no non-equity incentive plan compensation or nonqualified deferred compensation earnings paid to any of our directors for the year ended December 31, 2016. Directors who are employees receive no additional or special compensation for serving as directors. All compensation for Messrs. Caldwell, Oakes and Verdi is included in the Summary Compensation Table. Mr. Caldwell was appointed Chief Executive Officer of the Company on January 26, 2015. Messrs. Adamsky, Tecce and Caldwell have assigned all of their compensation to The Co-Investment Fund II, L.P. Messrs. Tecce 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. Mr. Adamsky was an officer of Co-Invest II Capital Partners, Inc.

 

Name    

Fees Earned or
Paid in Cash

($) (1)

   Stock Awards
($)
   Option
Awards
($)
  

Total

($)

 
                        
Brian Adamsky  (2)   4,500    -    -    4,500 
                        
Michael Azeez      6,000    -    -    6,000 
                        
John Harrison      6,000    -    -    6,000 
                        
Kenneth Harvey      6,000    -    -    6,000 
                        
Alan Krigstein  (3)   -    -    -    - 
                        
Sanford Rich      8,000    -    -    8,000 
                        
L.J. Rowell      6,500    -    -    6,500 
                        
Paul Soltoff      6,000    -    -    6,000 
                        
Frederick Tecce  (2)   -                
                        
Edmond Walters      6,000    -    -    6,000 

 

(1)Represents board and committee meeting fees paid to our directors under our Non-Employee Director Compensation Plan.

 

(2)Messrs. Adamsky, Caldwell and Tecce have assigned all of their board compensation to The Co-Investment Fund II, L.P. Mr. Tecce received no cash compensation during 2016.

 

(3)Mr. Krigstein has assigned his equity compensation to Independence Blue Cross, LLC and he has declined all cash compensation.

 

 32 

 

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, 2016.

 

  Aggregate Number of
Options/Warrants Available as
of December 31, 2016
   
Brian Adamsky (a) -
   
Michael Azeez (b) 30,000
   
Donald Caldwell (a) -
   
John Harrison (b) 30,000
   
Kenneth Harvey (b) 300,000
   
Alan Krigstein (c) -
   
Sanford Rich (b) 30,000
   
L.J. Rowell  (b) 30,000
   
Paul Soltoff (b) 30,000
   
Frederick Tecce (a) -
   
Edmond Walters (b) 30,000

 

(a)Messrs. Adamsky, Caldwell and Tecce 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)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.

 

 33 

 

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.

 

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 29, 2017, 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 (i) any shares as to which the individual or entity has sole or shared voting power or investment power and (ii) any shares that an individual or entity has the right to acquire beneficial ownership of within 60 days of March 29, 2017 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 29, 2017 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 25,084,730 shares of Common Stock, 1,276,750 shares of Series A Convertible Preferred Stock and 5,307,212 shares of Series B Convertible Preferred Stock outstanding as of March 29, 2017. Unless otherwise indicated, the address of all individuals and entities listed below is InsPro Technologies Corporation, 1510 Chester Pike, 400 Baldwin Tower, Eddystone, Pennsylvania 19022.

 

Name of Beneficial Owner  

Number of Shares

Beneficially
Owned

  Title of Class  

Percent of
Shares
Beneficially

Owned

Directors and Executive Officers:            
             
Brian Adamsky   -   Common Stock   *
Michael Azeez   15,099,990 (4)(5)   Common Stock   26.7%
    463,333(4)(7)   Series B Preferred Stock   8.7%
Donald R. Caldwell   86,199,770 (1)(2)   Common Stock   75.2%
    1,250,000 (2)   Series A Preferred Stock   97.9%
    1,887,186 (2)(3)  

Series B Preferred Stock

  35.2%

 

 34 

 

Name of Beneficial Owner  

Number of Shares

Beneficially
Owned

  Title of Class  

Percent of
Shares
Beneficially

Owned

Mark Daley   1,400,000 (24)   Common Stock   3.3%
    40,000 (26)   Series A Preferred Stock   3.0%
Robert J. Oakes   9,026,813 (6)   Common Stock   16.9%
    151,250 (8)   Series A Preferred Stock   10.6%
    300,000 (10)   Series B Preferred Stock   5.4%
John Harrison   770,000  (9)(14)   Common Stock   1.8%
    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   5.4%
John Keddy   -   Common Stock   *
Alan Krigstein   -   Common Stock   *
L. J. Rowell   815,600  (14)   Common Stock   1.9%
    30,000 (7)   Series B Preferred Stock   *
Paul Soltoff   805,000  (13)(14)   Common Stock   1.9%
    1,250   Series A Preferred Stock   *
    30,000 (7)   Series B Preferred Stock   *
Sanford Rich   715,000  (13)(14)   Common Stock   1.7%
    1,250   Series A Preferred Stock   *
    30,000 (7)   Series B Preferred Stock   *
Frederick Tecce   85,688,674 (1)(2)   Common Stock   74.8%
    1,250,000 (2)   Series A Preferred Stock   97.9%
    1,887,186 (2)(3)   Series B Preferred Stock   35.2%
Anthony R. Verdi   9,085,000  (15)   Common Stock   18.0%
    151,250(8)   Series A Preferred Stock   10.6%
    300,000 (10)   Series B Preferred Stock   5.4%
Edmond Walters   5,771,613(21)   Common Stock   12.2%
    196,666 (7)   Series B Preferred Stock   3.7%

 

 35 

 

Name of Beneficial Owner  

Number of Shares

Beneficially
Owned

  Title of Class  

Percent of
Shares
Beneficially

Owned

All directors and executive officers as a group (12 persons)           135,291,700 (1)(2)
(4)(5)(6)(9)
(11)(13)
(14)(15)(16)(17)
(18) (21)
Common Stock 85.7%
             
    1,556,250 (23)   Series A Preferred Stock   98.7%
    3,567,185 (2)   Series B Preferred Stock   55.3%
    (4) (22)        
             
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.   85,688,674 (16)   Common Stock   74.8%
    1,250,000   Series A Preferred Stock   97.9%
    1,887,186 (3)   Series B Preferred Stock   35.2%
             
Independence Blue Cross   58,933,330 (17)   Common Stock   58.7%
    2,530,000 (7)   Series B Preferred Stock   47.4%
             
Azeez Investors, LLC   9,999,990 (5)   Common Stock   19.4%
    283,333   Series B Preferred Stock   5.3%
             
Azeez Enterprises, LP   4,500,000 (25)   Common Stock   9.8%
    150,000   Series B Preferred Stock   2.8%
             
John Scarpa   4,500,000 (25)   Common Stock   20.9%
    150,000   Series B Preferred Stock   6.9%
             
Scarpa Family Trust, 2005   11,000,010 (18)   Common Stock   20.9%
    366,667   Series B Preferred Stock   6.9%
             
Trustmark Insurance Company   40,000,000 (27)   Common Stock   49.1%
    2,000,000 (28)   Series B Preferred Stock   27.4%
             
Alvin H. Clemens   2,292,080 (19)   Common Stock   7.1%

 

 

* Less than 1%

 

 36 

 

(1)Includes 13,157,970 shares of common stock, 10,298,080 shares underlying warrants, which are convertible within 60 days of March 29, 2017, 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 36,543,720 shares underlying 1,827,186 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 29, 2017, 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 was secretary, treasurer and chief financial officer, of which Frederick Tecce is the managing director 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 29, 2017, which are beneficially owned by Co-Investment.

 

(4)Includes securities owned by Azeez Investors, LLC and Azeez Enterprises, LP. Mr. Azeez is a managing member of Azeez Investors, LLC and Azeez Enterprises, LP. Mr. Azeez disclaims beneficial ownership of these securities, except to the extent of his pecuniary interest therein.

 

(5)Includes 4,333,330 shares underlying warrants which are exercisable within 60 days of March 29, 2017. 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.

 

(6)Includes 3,000,000 shares underlying a warrant which is exercisable within 60 days of March 29, 2017, 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 29, 2017, 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 29, 2017.

 

(8)Includes 150,000 shares underlying a warrant which is exercisable within 60 days of March 29, 2017, to purchase 150,000 shares of Series A Convertible Preferred Stock.

 

(9)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.

 

(10)Includes 300,000 shares underlying warrants, which are exercisable within 60 days of March 29, 2017.

 

(11)Includes 6,000,000 shares underlying a warrant which is exercisable within 60 days of March 29, 2017, 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)Intentionally omitted.

 

(13)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.

 

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(14)Includes 600,000 shares underlying a warrant which is exercisable within 60 days of March 29, 2017, 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.

 

(15)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 29, 2017, 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 29, 2017, 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 10,298,080 shares underlying warrants, which are exercisable within 60 days of March 29, 2017. 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 37,743,720 shares underlying 1,887,186 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 29, 2017, 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 8,333,330 shares underlying warrants which are exercisable within 60 days of March 29, 2017. Includes 50,000,000 shares underlying 2,500,000 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 29, 2017, 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 3,666,670 shares underlying warrants which are exercisable within 60 days of March 29, 2017. Includes 7,333,340 shares underlying 366,667 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)Intentionally omitted

 

(21)Includes 3,333,320 shares underlying 166,666 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 29, 2017, 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 29, 2017.

 

(23)Includes 340,000 shares underlying warrants which are exercisable within 60 days of March 29, 2017, to purchase 340,000 shares of Series A Convertible Preferred Stock. Excludes 40,000 shares underlying a warrant which is not exercisable within 60 days of March 29, 2017, to purchase 40,000 shares of Series A Convertible Preferred Stock.

 

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(24)Includes 600,000 shares underlying options, which are exercisable within 60 days of March 29, 2017. Includes 800,000 shares underlying a warrant which is exercisable within 60 days of March 29, 2017, to purchase 40,000 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. Excludes 1,200,000 shares underlying options, which are not exercisable within 60 days of March 29, 2017. Excludes 800,000 shares underlying a warrant which is not exercisable within 60 days of March 29, 2017, to purchase 40,000 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.

 

(25)Includes 1,500,000 shares underlying warrants which are exercisable within 60 days of March 29, 2017. Includes 3,000,000 shares underlying 150,000 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.

 

(26)Includes 40,000 shares underlying a warrant which is exercisable within 60 days of March 29, 2017, to purchase 40,000 shares of Series A Convertible Preferred Stock. Excludes 40,000 shares underlying a warrant which is not exercisable within 60 days of March 29, 2017, to purchase 40,000 shares of Series A Convertible Preferred Stock.

 

(27)Includes 40,000,000 shares underlying a warrant which is exercisable within 60 days of June 30, 2016, to purchase 2,000,000 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.

 

(28)Includes 2,000,000 shares underlying warrants, which are exercisable within 60 days of June 30, 2016.

 

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, 2015:

 

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   4,000,000   $0.10    24,996,980 
                
Equity compensation plans not approved by security holders(1)(2)(3)   32,600,000   $0.16    0 
                
Total(1)(2)(3)   36,600,000   $0.15    24,996,980 

 

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(1)Includes warrants issued as compensation, which were not part of an equity compensation plan that was approved by security holders, to four executives to purchase in aggregate 380,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), 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 will expire on September 14, 2017. 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 will expire on September 14, 2017. Also includes warrants granted on March 27, 2015 to Mr. Daley and another executive of the Company who each received warrants to purchase 80,000 shares of the Company’s Series A Preferred Stock, which in total vests as follows: 40,000 shares of Series A Preferred Stock on March 27 of each year from 2016 through 2019. These warrants will expire on March 27, 2020.

 

(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 Preferred 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 Preferred 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 Preferred 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 Preferred Stock. Also includes warrants granted on November 13, 2015 to two executives of the Company who each received warrants to purchase 40,000 shares of the Company’s Series A Preferred Stock, which were immediately exercisable and will expire on March 27, 2020.

 

(3)Assumes the warrants to purchase in aggregate 380,000 shares of Series A 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 7,600,000 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 1,250,000 shares of Series B 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 25,000,000 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 – Stock Options and in the notes to the consolidated financial statements contained in Item 7 of this Annual Report on Form 10-K.

 

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Transactions With Related Persons

 

From the beginning of our fiscal year preceding 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 January 30, 2015, the Company and InsPro LLC issued a Secured Convertible Promissory Note (the “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 LLC 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 (the “Loan”) to the Company and InsPro LLC, which is secured by all assets of the Company and InsPro LLC other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (“Collateral”). Pursuant to the 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 LLC may prepay the Note at any time in whole or in part without payment of penalty or unearned interest.

 

oPursuant 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 LLC 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.

 

oIn 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 LLC 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 LLC 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. In connection therewith, Co-Investment provided a second loan in the amount of $1,000,000 to the Company and InsPro LLC.

 

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·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 “Walters Loan”). The Walters Loan 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 Walters Loan 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 September 18, 2015, the Company completed a private placement (the “September Private Placement”) with certain accredited investors (the “Investors”), including Co-Investment, Donald Caldwell who is the CEO and chairman of the board of directors of the Company and managing partner of Co-Investment, Edmond Walters, who is a director of the Company, and Azeez Enterprises, LP, which is affiliated with Michael Azeez, who is a director of the Company, for an aggregate of 1,163,141 shares of our Series B Convertible Preferred Stock and warrants to purchase 11,631,410 shares of our common stock (the “2015 Warrants”). The Company sold to the Investors 1,163,141 units (“Units”) at a per Unit price of $3.00, for an aggregate total investment of $3,489,423, and each unit consisted of one share of Series B Preferred Stock and a warrant to purchase 10 shares of our Common Stock at an initial exercise price of $0.15 per share (“Warrant Shares”), subject to adjustment pursuant to the terms of a securities purchase agreement (the “Purchase Agreement”). In the September Private Placement the Company issued; 696,475 shares of Series B Preferred Stock and a warrant to purchase 6,964,750 shares of the Company’s Common Stock to Co-Investment, 166,666 shares of Series B Preferred Stock and a warrant to purchase 1,666,660 shares of the Company’s Common Stock to Edmond Walters, 150,000 shares of Series B Preferred Stock and a warrant to purchase 1,500,000 shares of the Company’s Common Stock to Azeez Enterprises, LP. and 150,000 shares of Series B Preferred Stock and a warrant to purchase 1,500,000 shares of the Company’s Common Stock to an unrelated third party.

 

oPursuant to the terms of the Purchase Agreement, the Company and Co-Investment agreed that, effective at the closing on September 18, 2015, (i) the Note and Second Note (collectively, the “Notes”) were amended such that the entire principal amount of such Notes plus accrued interest as of the closing was converted into Units, (ii) the Notes were converted in accordance with the terms thereof by the issuance of the Units to Co-Investment under the Purchase Agreement, (iii) all amounts owed to Co-Investment by the Company under borrowings by the Company, whether evidenced orally or in writing, including without limitation, the Notes and any unpaid principal balance, any interest owed and any penalties or additional fees owed to Co-Investment (collectively, “Existing Indebtedness”), was fully paid and satisfied by the Company, and the Existing Indebtedness was cancelled, and (iv) the Notes and any other agreements entered into in connection with the Notes were amended to give effect to the foregoing.

 

oPursuant to the terms of the Purchase Agreement, the Company and Edmond Walters agreed that, effective at the closing on September 18, 2015, (i) the Walters Loan was converted by the issuance of the Units to Edmond Walters under the Purchase Agreement, (ii) all amounts owed to Edmond Walters by the Company under borrowings by the Company, whether evidenced orally or in writing, including without limitation, the Walters Loan and any unpaid principal balance, any interest owed and any penalties or additional fees owed to Edmond Walters (collectively, “Walters Existing Indebtedness”), was fully paid and satisfied by the Company, and the Walters Existing Indebtedness was cancelled, and (iii) the Walters Loan and any agreements entered into in connection with the Loan were amended to give effect to the foregoing.

 

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·On October 6, 2015, the Company entered into and completed a private placement (the “IBC Private Placement”) with Independence Blue Cross, LLC, a Pennsylvania limited liability company ( “IBC”), for an aggregate of 333,333 shares of its Series B Preferred Stock and a warrant to purchase 3,333,330 shares of the Company’s Common Stock, pursuant to the terms of a securities purchase agreement In the IBC Private Placement the Company sold to IBC 333,333 units at a per unit price of $3.00, for an aggregate total investment of $999,999, and each unit consisted of one share of Series B Preferred Stock and a warrant to purchase 10 shares of the Company’s Common Stock at an exercise price of $0.15 per share, subject to adjustment.

 

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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, Tecce and Walters are “independent” directors.

 

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

A summary of the fees of D’Arelli Pruzansky, P.A. for the years ended December 31, 2016 and 2015 are set forth below:

 

   2016 Fees   2015
Fees
 
         
Audit Fees (1)  $87,500   $82,500 
Audit Related Fees (2)   -    2,500 
Tax Fees   -    - 
All Other Fees   -    - 
Total Fees  $87,500   $85,000 

 

 
(1)Audit fees of D’Arelli Pruzansky, P.A. for the fiscal years ended December 31, 2016 and 2015 were for professional services rendered for the 2016 and 2015 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, 2015 were 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. The audit committee approved 100% of the audit related fees for the Company’s registration statement on Form S-1 in 2015.

 

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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).

 

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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 (incorporated by reference to Exhibit 3.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the Commission on March 31, 2015).
     
3.13**   Certificate of Amendment to Certificate of Incorporation filed August 25, 2015.
     
3.14**   Certificate of Amendment to Certificate of Designation with respect to shares of Series B Preferred Stock.
     
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).

 

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Exhibit

Number

  Description
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).
     
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).

 

 47 

 

Exhibit

Number

  Description
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).
     
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).
     
4.36   Securities Purchase Agreement, dated September 18, 2015, 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 24, 2015).
     
4.37   Registration Rights Agreement, dated September 18, 2015, 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 24, 2015).
     
4.38   Registration Rights Agreement, dated September 18, 2015, 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 24, 2015).
     
4.39   Form of Warrant (incorporated by reference from Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 24, 2015).
     
4.40   Securities Purchase Agreement, dated October 6, 2015, by and among InsPro Technologies Corporation 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 October 7, 2015).
     
4.41   Registration Rights Agreement, dated October 6, 2015, by and among InsPro Technologies Corporation and the Investor 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 7, 2015).
     
4.42   Form of Warrant (incorporated by reference from Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 7, 2015).

 

 48 

 

Exhibit

Number

  Description
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).
     
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-K, filed with the Commission on December 8, 2014).

 

 49 

 

Exhibit

Number

  Description
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**   Certificate of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2**   Certificate of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1**   Principal Executive Officer Certification pursuant to 18 U.S.C Section 1350, as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2**   Principal Financial Officer Certification pursuant to 18 U.S.C Section 1350, as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

**Filed herewith

 

 50 

 

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 (Principal Financial and Accounting 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   March 30, 2017
Anthony R. Verdi   (Principal Financial and Accounting Officer)    
         
/s/ Donald R. Caldwell   Principal Executive Officer, Chairman   March 30, 2017
Donald R. Caldwell        
         
/s/ Michael Azeez   Director   March 30, 2017
Michael Azeez        
         
/s/ John Harrison   Director   March 30, 2017
John Harrison        
         
/s/ Kenneth Harvey   Director   March 30, 2017
Kenneth Harvey        
         
/s/ Alan Krigstein   Director   March 30, 2017
Alan Krigstein        
         
/s/ Robert J. Oakes   Director   March 30, 2017
Robert J. Oakes        
         
  Director  
Paul Soltoff        
         
/s/ Sanford Rich   Director   March 30, 2017
Sanford Rich        
         
/s/ L. J. Rowell   Director   March 30, 2017
L.J. Rowell        
         
/s/ Frederick Tecce   Director   March 30, 2017
Frederick Tecce        
         
  Director  
Edmond Walters        

 

 51 

 

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).

 

 52 

 

Exhibit

Number

  Description
3.12   Certificate of Amendment to Certificate of Incorporation filed August 20, 2014 (incorporated by reference to Exhibit 3.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the Commission on March 31, 2015).
     
3.13**   Certificate of Amendment to Certificate of Incorporation filed August 25, 2015.
     
3.14**   Certificate of Amendment to Certificate of Designation with respect to shares of Series B Preferred Stock.
     
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).
     
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).

 

 53 

 

Exhibit

Number

  Description
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).
     
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).

 

 54 

 

Exhibit

Number

  Description
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).
     
4.36   Securities Purchase Agreement, dated September 18, 2015, 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 24, 2015).
     
4.37   Registration Rights Agreement, dated September 18, 2015, 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 24, 2015).
     
4.38   Form of Warrant (incorporated by reference from Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 24, 2015).
     
4.39   Securities Purchase Agreement, dated October 6, 2015, by and among InsPro Technologies Corporation 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 October 7, 2015).
     
4.40   Registration Rights Agreement, dated October 6, 2015, by and among InsPro Technologies Corporation and the Investor 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 7, 2015).
     
4.41   Form of Warrant (incorporated by reference from Exhibit 4.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 7, 2015).
     
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).

 

 55 

 

Exhibit

Number

  Description
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).
     
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-K, filed with the Commission on December 8, 2014).
     
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)

 

 56 

 

Exhibit

Number

  Description
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 29, 2017 (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 29, 2017 (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**   Certificate of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2**   Certificate of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1**   Principal Executive Officer Certification pursuant to 18 U.S.C Section 1350, as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2**   Principal Financial Officer Certification pursuant to 18 U.S.C Section 1350, as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

**Filed herewith

 

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