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EX-32.2 - EXHIBIT 32.2 - InsPro Technologies Corpv472597_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - InsPro Technologies Corpv472597_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - InsPro Technologies Corpv472597_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - InsPro Technologies Corpv472597_ex31-1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2017

 

OR

 

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

 

For the transition period from            to

 

Commission file number 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

Suite 400

Eddystone, Pennsylvania 19022

(Address of Principal Executive Offices) (Zip Code)

 

(484) 654-2200

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x  No o

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (232.405 of this chapter) during the preceding 12 months (or for shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨

 

 

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 definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

 

Large Accelerated Filer o     Accelerated Filer o
Non-Accelerated Filer o    

Smaller Reporting Company x

Emerging Growth Company o

  

If an emerging growth company, indicated by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o  No x

 

As of August 14, 2017, there were 41,543,655 outstanding shares of common stock, par value $0.001 per share, of the registrant.

 

 

 

 

 

INSPRO TECHNOLOGIES Corporation
Form 10-Q Quarterly Report
INDEX

 

PART I
FINANCIAL INFORMATION
Item 1   Financial Statements 3
       
    Consolidated Balance Sheets as of June 30, 2017 (UNAUDITED) and December 31, 2016 3
    Consolidated Statements of Operations (UNAUDITED) for the three and six months ended June 30, 2017 and 2016 4
    Consolidated Statements of Cash Flows (UNAUDITED) for the six months ended June 30, 2017 and 2016 5
       
    Notes to UNAUDITED Consolidated Financial Statements 6
       
Item 2   Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
       
Item 4   Controls and Procedures 41
       
PART II
OTHER INFORMATION
       
Item 1   Legal Proceedings 41
       
       
Item 6   Exhibits 41
       
    Signatures 42

 

 

 Page 2 

 

 

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

         
   June 30, 2017   December 31, 2016 
   (Unaudited)      
ASSETS          
           
CURRENT ASSETS:          
Cash  $3,177,992   $3,161,617 
Accounts receivable, net   2,173,879    2,333,817 
Prepaid expenses   311,622    225,439 
Other current assets   -    30,520 
Assets of discontinued operations   4,054    8,636 
           
Total current assets   5,667,547    5,760,029 
           
Property and equipment, net   326,026    512,960 
           
Total assets  $5,993,573   $6,272,989 
           
LIABILITIES AND SHAREHOLDERS' DEFICIT          
           
CURRENT LIABILITIES:          
Notes payable  $42,029   $39,194 
Accounts payable   2,511,498    5,460,035 
Accrued expenses   851,320    436,516 
Current portion of capital lease obligations   136,901    188,025 
Deferred revenue   3,356,557    2,285,140 
           
Total current liabilities   6,898,305    8,408,910 
           
LONG TERM LIABILITIES:          
Deferred revenue   1,500,000    1,500,000 
Capital lease obligations   80,886    153,139 
           
Total long term liabilities   1,580,886    1,653,139 
           
Total liabilities   8,479,191    10,062,049 
           
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)   1,277    1,277 
  Series B convertible preferred stock; 11,000,000 shares designated, 5,307,212          
      shares issued and outstanding (liquidation value $15,921,636)   5,307    5,307 
  Series C convertible preferred stock; 4,000,000 shares designated, 1,150,000          
      shares issued and outstanding (liquidation value $5,750,000)   1,150    - 
  Common stock ($.001 par value; 500,000,000 shares authorized,          
     41,543,655 shares issued and outstanding)   41,543    41,543 
  Additional paid-in capital   65,209,962    62,815,507 
  Accumulated deficit   (67,744,857)   (66,652,694)
           
Total shareholders' deficit   (2,485,618)   (3,789,060)
           
Total liabilities and shareholders' deficit  $5,993,573   $6,272,989 
           

 

See accompanying notes to unaudited consolidated financial statements.

 Page 3 

 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

 

                 
   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2017   2016   2017   2016 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
                 
Revenues  $4,494,035   $4,439,300   $9,540,801   $11,236,571 
                     
Cost of revenues   3,217,178    4,662,055    7,326,147    10,241,625 
                     
Gross profit (loss)   1,276,857    (222,755)   2,214,654    994,946 
                     
Selling, general and administrative expenses   1,722,908    1,275,945    3,319,406    2,906,080 
                     
Operating loss from continuing operations   (446,051)   (1,498,700)   (1,104,752)   (1,911,134)
                     
Other income (expense):                    
   Gain on the sale of equipment   -    -    5,380    - 
Interest expense   (4,262)   (6,481)   (9,556)   (10,459)
                     
     Total other income (expense)   (4,262)   (6,481)   (4,176)   (10,459)
                     
Loss from continuing operations   (450,313)   (1,505,181)   (1,108,928)   (1,921,593)
                     
Income from discontinued operations   4,452    25,277    16,765    38,493 
                     
Net loss  $(445,861)  $(1,479,904)  $(1,092,163)  $(1,883,100)
                     
Net income (loss) per common share - basic and diluted:                    
  Loss from operations per common share  $(0.01)  $(0.04)  $(0.03)  $(0.05)
  Income from discontinued operations per common share   -    -    -    - 
  Net loss per common share  $(0.01)  $(0.04)  $(0.03)  $(0.05)
                     
Weighted average common shares outstanding - basic and diluted   41,543,655    41,543,655    41,543,655    41,543,655 
                     

 

See accompanying notes to unaudited consolidated financial statements.

 

 Page 4 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the Six Months Ended June 30, 
   2017   2016 
   (Unaudited)   (Unaudited) 
Cash Flows From Operating Activities:        
Net loss  $(1,092,163)  $(1,883,100)
Less: income from discontinued operations   (16,765)   (38,493)
Loss from continuing operations   (1,108,928)   (1,921,593)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   212,148    253,614 
Stock-based compensation   107,760    183,378 
Stock based fees paid to client as a reduction to revenue   -    1,299,963 
(Gain) on the sale of used equipment   (5,380)   - 
Changes in assets and liabilities:          
Accounts receivable   159,938    (749,675)
Prepaid expenses   (40,102)   (90,850)
Other current assets   30,520    2,710 
Accounts payable   (2,948,537)   (376,295)
Accrued expenses   414,804    205,559 
Deferred revenue   1,071,417    408,697 
           
Net cash used in continuing operations
   (2,106,360)   (784,492)
           
            Income from discontinued operations   16,765    38,493 
Changes in assets of discontinued operations   4,582    6,814 
Net cash provided by discontinued operations   21,347    45,307 
           
Net cash used in operating activities   (2,085,013)   (739,185)
           
Cash Flows From Investing Activities:          
Purchase of property and equipment   (25,215)   (11,633)
Proceeds from the sale of equipment   5,380    - 
           
Net cash used in investing activities   (19,835)   (11,633)
           
Cash Flows From Financing Activities:          
Gross proceeds from sale of preferred stock   2,300,000    - 
Fees paid in connection with sale of preferred stock   (12,154)   - 
Gross proceeds from sale of preferred stock and warrants   -    4,080 
Payments on notes payable   (43,246)   (45,345)
Payments on capital leases   (123,377)   (121,488)
           
Net cash provided by (used in) financing activities   2,121,223    (162,753)
           
Net increase (decrease) in cash   16,375    (913,571)
           
Cash - beginning of the period   3,161,617    3,398,293 
           
Cash - end of the period  $3,177,992   $2,484,722 
           
Supplemental Disclosures of Cash Flow Information          
Cash payments for interest  $9,556   $10,459 
           
Non cash investing and financing activities:          
   Acquisition of equipment acquired through capital leases  $-   $131,078 

 

See accompanying notes to unaudited consolidated financial statements.

 

 Page 5 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017

 

 

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 accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016 and notes thereto and other pertinent information contained in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “Commission”).

 

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.

 

For purpose of comparability, certain prior period amounts have been reclassified to conform to the 2017 presentation.

 

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 2017 and 2016 include the allowance for doubtful accounts, stock-based compensation, the useful lives and valuation of property and equipment, and deferred revenue.

 

Cash and cash equivalents

 

The Company considers all liquid debt instruments with original maturities of three months or less to be cash equivalents.

 

 Page 6 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017

 

 

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

 

Accounts receivable and allowance for uncollectable accounts

 

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 June 30, 2017 and December 31, 2016, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $0.

 

Fair value of financial instruments

 

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and capital leases approximated fair value as of June 30, 2017 and December 31, 2016, because of the relatively short-term maturity of these instruments and their market interest rates.

 

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.

 

 Page 7 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017

 

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

 

Income taxes

 

The Company accounts for income taxes pursuant to the provisions of FASB ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), 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 the 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.

 

The Company has adopted FASB ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of June 30, 2017, the tax years ended December 31, 2016, 2015 and 2014 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 income (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 2017 and 2016 are excluded from the calculation of diluted income (loss) per common share because they are anti-dilutive.

 

 Page 8 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017

 

 

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

 

The Company's common stock equivalents include the following:

 

    June 30,   December 31, 
   2017   2016 
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    106,144,240 
Series C convertible preferred stock issued and outstanding   23,000,000    - 
Options to purchase common stock issued and outstanding   1,200,000    4,000,000 
Warrants to purchase common stock issued and outstanding   25,098,330    25,098,330 
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    65,000,000 
    253,577,570    233,377,570 

  

Revenue recognition and deferred revenue

 

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.

 

 

 Page 9 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

June 30, 2017

 

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

 

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 June 30, 2017 the Company has recorded the $2,000,000 unearned portion of the Reseller Fee in deferred revenue ($500,000 included in current liabilities and $1,500,000 included in long term liabilities).

 

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

 

See Note 2 - Discontinued Operations - Revenue Recognition for Discontinued Operations.

 

 Page 10 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 June 30, 2017

 

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

 

Cost of revenues

 

Cost of revenues includes direct labor and associated costs for employees and independent contractors performing InsPro EnterpriseTM design, development, implementation and testing together with customer management, training and technical support, as well as a portion of facilities costs and depreciation. The following table discloses cost of revenue as reported in the statement of operations.

 

   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2017   2016   2017   2016 
                     
Compensation, employee benefits and related taxes  $1,359,970   $1,797,351   $3,280,393   $4,029,706 
Professional fees   1,619,427    2,555,576    3,534,411    5,567,930 
Depreciation   61,341    96,093    149,490    196,307 
Rent, utilities, telephone and communications   93,714    97,663    200,202    235,333 
Other cost of revenues   82,726    115,372    161,651    212,349 
   $3,217,178   $4,662,055   $7,326,147   $10,241,625 

 

 

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 Three Months Ended June 30,   For the Six Months Ended June 30, 
   2017   2016   2017   2016 
Compensation, employee benefits and related taxes  $1,228,003   $798,352   $2,360,961   $1,806,438 
Advertising and other marketing   7,687    7,734    16,422    49,454 
Depreciation   27,869    31,886    62,658    57,307 
Rent, utilities, telephone and communications   51,840    103,277    151,353    204,208 
Professional fees   214,560    143,750    352,860    404,552 
Other general and administrative   192,949    190,946    375,152    384,121 
   $1,722,908   $1,275,945   $3,319,406   $2,906,080 

 

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.

 

 Page 11 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

 

 

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 June 30, 2017, the Company had $3,338,173 of cash in United States bank deposits, of which $500,818 was federally insured and $2,837,355 was not federally insured.

 

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

 

   June 30, 2017  December 31, 2016
       
Client #1  57%  30%
Client #2  10%  12%
Client #3  9%  13%

 

 

The following table lists the percentage of the Company’s revenue earned from the Company’s clients representing 10% or more of the revenue earned in each of the periods listed below.

 

   For the 6 Months Ended June 30,
   2017  2016
       
Client #1  30%  24%
Client #2  19%  18%
Client #3  -  13%

 

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.

 

Registration rights agreements

 

At June 30, 2017, the Company does not believe that it will incur a penalty in connection with the Company’s registration rights agreements. Accordingly, no liability in respect thereof was recorded as of June 30, 2017. See Note 6 - Stockholders Deficit – Registration and Participation Rights.

 

 Page 12 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

 

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 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.[update]

 

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”), which 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. We believe our current lease for our Eddystone office, which was extended for a 1 year term that expires on January 31, 2019, 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.

 

 Page 13 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

 

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

 

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.

 

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 was effective for the Company at the beginning of fiscal year 2017 and there was no material impact of adopting this ASU on our consolidated financial statements.

 

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.

 

 

 

 Page 14 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 June 30, 2017

 

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

 

Liquidity

 

During the six months ended June 30, 2017, the Company’s net loss was $1,092,163 and cash used in operations was $2,085,013. As of June 30, 2017, the Company had $3,177,992 of cash, a working capital deficit of $1,230,758 and the Company’s shareholder deficit was $2,485,618. During 2016 the Company implemented cost reduction initiatives, which resulted in the reduction of expenses in 2016 as compared to 2015. During the six months ended June 30, 2017, the Company implemented additional cost reduction initiatives, which resulted in the reduction of cost of revenues of $2,915,478 as compared to the same period in 2016. During the second quarter of 2017 the Company obtained $2,300,000 of cash from existing stockholders, which is described in Note 5 – Transactions with Related Parties.

 

Our liquidity needs for the next 12 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 for twelve months from the date of this report was issued.

 

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 its agency business to an unaffiliated third party, pursuant to the terms of a client transition agreement.

 

The financial position of discontinued operations was as follows:

 

   June 30, 2017   December 31, 2016 
Accounts receivable  $4,054   $8,636 
Net current assets of discontinued operations  $4,054   $8,636 

 

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 Three Months Ended June 30,   For the Six Months Ended June 30, 
   2017   2016   2017   2016 
Revenues:                
Commission and other revenue from carriers  $2,029   $2,492   $4,407   $5,559 
Transition policy commission pursuant to the Agreement   12,059    30,264    27,993    46,412 
    14,088    32,756    32,400    51,971 
Operating expenses:                    
Other general and administrative   9,636    7,479    15,635    13,478 
    9,636    7,479    15,635    13,478 
Income from discontinued operations  $4,452   $25,277   $16,765   $38,493 

 

 Page 15 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 June 30, 2017

 

NOTE 3 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   Useful
Life
(Years)
  June 30, 2017   December 31, 2016 
            
Computer equipment and software  3  $4,509,487   $4,419,412 
Office equipment  4.6   145,228    158,732 
Office furniture and fixtures  6.7   -    189,857 
Leasehold improvements  5.4   81,933    94,620 
       4,736,648    4,862,621 
Less accumulated depreciation      (4,410,622)   (4,349,661)
      $326,026   $512,960 

 

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

 

   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2017   2016   2017   2016 
                     
Depreciation included in cost of revenues  $61,341   $96,093   $149,490   $196,307 
Depreciation included in selling, general and administrative   27,869    31,886    62,658    57,307 
Total depreciation  $89,210   $127,979   $212,148   $253,614 

 

NOTE 4 – NOTES PAYABLE

 

Notes payable at June 30, 2017, consist of a note payable for insurance premium financing on one of the Company’s insurance policies. The note commenced on May 3, 2017, 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, 2017 and ending on April 3, 2018.

 

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.

 

 

 Page 16 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

 

 

NOTE 5 – TRANSACTIONS WITH RELATED PARTIES

 

Private Placements to Existing Stockholders

 

On April 20, 2017, the Company completed a private placement (the “Private Placement”) with The Co-Investment Fund II, L.P. (“Co-Investment”), which hold more than 5% of our common stock. Donald Caldwell, who is the CEO and chairman of the board of directors of the Company, is the CEO for Cross Atlantic Capital Partners, Inc., which is the managing partner of Co-Investment. The Company issued and Co-Investment purchased 1,000,000 shares of our Series C Convertible Preferred Stock at a per share price of $2.00 for an aggregate total investment of $2,000,000 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.

 

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 500,000 shares of Series C Preferred Stock Units to other existing stockholders 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 Co-Investment, subject to certain exceptions and limitations, which grants Co-Investment 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. Co-Investment may participate in such financings at a level based on Co-Investment’s ownership percentage of the Company on a fully-diluted basis prior to such financing.

 

On May 11, 2017, the Company completed a private placement (the “Second Private Placement”) with Azeez Enterprises, L.P., which hold more than 5% of our Series C Preferred Stock. Michael Azeez is a member of the board of directors of the Company and is the managing partner of Azeez Enterprises, L.P. The Company issued and Azeez Enterprises, L.P. purchased 75,000 shares of our Series C Convertible Preferred Stock at a per share price of $2.00 for an aggregate total investment of $150,000 pursuant to the terms of a securities purchase agreement at essentially the same terms as those contained in the Purchase Agreement (the “Second Purchase Agreement”). Also as part of the Second Private Placement and Second Purchase Agreement with John Scarpa, which hold more than 5% of our Series B Preferred Stock. The Company issued and John Scarpa purchased 75,000 shares of our Series C Convertible Preferred Stock at a per share price of $2.00 for an aggregate total investment of $150,000 pursuant to the terms of the Second Purchase Agreement.

 

See Note 6 - Shareholders’ Deficit – Series C Preferred Stock.

 

 

 Page 17 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

 

 

NOTE 6 – STOCKHOLDERS’ DEFICIT

 

Common Stock

 

As of June 30, 2017 and December 31, 2016, 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 June 30, 2017 and December 31, 2016, the Company had 41,543,655 shares of its Common Stock issued and outstanding.

 

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

 

   June 30, 2017   December 31, 2016 
Exercise of options issued and outstanding to purchase common stock   1,200,000    4,000,000 
Issuance of common shares available under the 2010 Equity Compensation Plan   25,596,980    24,996,980 
Exercise of warrants issued and outstanding to purchase common stock   25,098,330    25,098,330 
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    106,144,240 
Exercise of warrants to purchase series B convertible preferred stock issued and outstanding          
and converted into common stock   65,000,000    65,000,000 
Conversion of series C convertible preferred stock issued and outstanding into common stock   23,000,000    - 
           
Total common stock reserved for issuance   279,174,550    258,374,550 

 

 

The above table includes Common Stock reserved for non exercisable, unvested 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 Preferred Stock

 

As of June 30, 2017 and December 31, 2016, the Company’s board of directors has designated 3,437,500 shares of Series A Convertible Preferred Stock par value $0.001 per share (“Series A Preferred Stock”). As of June 30, 2017 and December 31, 2016, the Company had 1,276,750 shares of its Series A Preferred Stock issued and outstanding. As of June 30, 2017 and December 31, 2016, 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 and preferred 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 in aggregate, 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. Series A Preferred Stock is junior to Series B Convertible Preferred Stock par value $0.001 per share (“Series B Preferred Stock”) and the Series C Preferred Stock as it pertains to liquidation preferances.

 

Each share of Series A Preferred Stock is convertible into 20 shares of Common Stock, subject to adjustment and at the option of the holder of the Series A Preferred Stock.

 

 Page 18 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

June 30, 2017

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued) 

 

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 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 any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series A Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series A Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series A Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series A Preferred Stock with an amount per share equal to two and a half (2.5) times the Series A Preferred Stock original issue price, or $12,767,500, in aggregate for all issued and outstanding Series A Preferred Stock.

 

Series B Preferred Stock

 

As of June 30, 2017 and December 31, 2016, the Company’s board of directors has designated 11,000,000 shares of Series B Preferred Stock. As of June 30, 2017 and December 31, 2016, the Company had 5,307,212 of its Series B Preferred Stock issued and outstanding. As of June 30, 2017 and December 31, 2016, the Company has reserved 3,250,000 shares of Series B Preferred Stock for the exercise of warrants issued and outstanding to purchase its Series B Preferred Stock.

 

The Series B Preferred Stock is entitled to vote as a single class with the holders of the Company’s Common Stock and preferred stock, with each share of Series B Preferred Stock having the right to 20 votes.

 

As of June 30, 2017 and December 31, 2016, upon the liquidation, sale or merger of the Company, each share of Series B 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 in aggregate, 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 Stock 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. Series B Preferred Stock is senior to Series A Preferred Stock, and junior to the Series C Preferred Stock, as it pertains to liquidation preferances.

 

Each share of Series B Preferred Stock is convertible into 20 shares of Common Stock, subject to adjustment and at the option of the holder of the Series B Preferred Stock.

 

 Page 19 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

June 30, 2017

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

  

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, or $15,921,636, in aggregate for all issued and outstanding 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 completed by the Company for an aggregate of 1,163,141 shares of Series B Preferred Stock and warrants to purchase 11,631,410 shares of Common Stock with certain accredited investors, including Co-Investment and Donald Caldwell, who is the CEO and chairman of the board of directors of the Company, 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.

 

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.

 

 Page 20 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

June 30, 2017

 

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

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 remaining 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.

 

Series C Preferred Stock

 

In connection with the Private Placement, the board of directors of the Company approved a Certificate of Designation of Series C Convertible Preferred Stock of the Company (the “Certificate of Designation”) setting forth the rights, preferences and limitations of the Series C Preferred Stock. The Company’s board of directors has designated 4,000,000 shares of Series C Preferred stock. On April 19, 2017, the Company filed the Certificate of Designation with the Secretary of State of the State of Delaware.

 

The Company recorded the $2,300,000 of proceeds received as a result of the Private Placement and Second Private Placement (collectively the “2017 Private Placements”) less $12,154 of legal expenses incurred in connection with the 2017 Private Placements to Series C Preferred Stock in the amount of $1,150 and additional paid in capital in the amount of $2,286,696. See Note 5 – Transactions With Related Parties.

 

As of June 30, 2017 and December 31, 2016, the Company’s board of directors has designated 4,000,000 and 0 shares of Series C Preferred Stock, respectively. As of June 30, 2017 and December 31, 2016, the Company had 1,150,000 and 0 of its Series C Preferred Stock issued and outstanding.

 

The Series C Preferred Stock is entitled to vote as a single class with the holders of the Company’s Common Stock and preferred 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 a half (2.5) times the Series C Preferred Stock original issue price, or $5,750,000 in aggregate, 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. Series C Preferred Stock is senior to Series A Preferred Stock and to Series B Preferred Stock as it pertains to liquidation preferances.

 

Each share of Series C Preferred Stock is 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, or $5,750,000, in aggregate for all issued and outstanding Series C Preferred Stock.

 

 Page 21 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

June 30, 2017

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

Stock Options

 

During the three months ended June 30, 2017, options for 2,800,000 common shares, which were previously granted to former executives of the Company, expired in accordance with the terms of such stock options.

 

As of June 30, 2017, there were 30,000,000 shares of our Common Stock authorized to be issued under the Company’s 2010 Equity Compensation Plan, of which 27,796,980 shares of our Common Stock remain available for future stock option grants.

 

The Company recorded compensation expense pertaining to employee stock options and warrants in the amount of $107,760 for the six months ended June 30, 2017.

 

The value of equity compensation expense not yet expensed pertaining to unvested equity compensation for both options to purchase common stock and Series A Preferred Stock was $30,933 as of June 30, 2017, which will be recognized over a weighted average 2.6 years in the future.

 

A summary of the Company's outstanding stock options 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, 2016   4,000,000   $0.10   $0.06    3.4   $   - 
For the period ended June 30, 2017                         
Granted   -    -    -           
Exercised   -    -    -           
Expired   (2,800,000)   0.10    0.04           
Outstanding at June 30, 2017   1,200,000   $0.10   $0.11    3.6   $- 
Outstanding and exercisable at June 30, 2017   383,333   $0.10   $0.10    3.4   $- 

  

(1) The aggregate intrinsic value is based on the $0.035 closing price as of June 30, 2017, for the Company’s Common Stock.

 

 Page 22 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 June 30, 2017

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

Common Stock Warrants

 

Outstanding warrants at June 30, 2017, have an average weighted average remaining contractual life of 0.4 years. A summary of the status of the Company's outstanding common stock warrants are as follows:

 

       Weighted 
   Common   Average 
   Stock   Exercise 
   Warrants   Price 
           
Outstanding and exercisable at December 31, 2016   25,098,330   $0.15 
For the period ended June 30, 2017          
Issued   -    - 
Exercised   -    - 
Expired   -    - 
Outstanding and exercisable at June 30, 2017   25,098,330   $0.15 

 

Series A Preferred Stock Warrants

 

Outstanding warrants to purchase the Company’s Series A Preferred Stock at June 30, 2017, have a remaining contractual life of 0.2 year. A summary of the status of the Company's outstanding Series A Preferred Stock warrants are as follows:

 

       Weighted 
   Preferred   Average 
   Stock   Exercise 
   Warrants   Price 
           
Outstanding and exercisable at December 31, 2016   380,000   $4.00 
For the period ended June 30, 2017          
Granted   -    - 
Exercised   -    - 
Expired   -    - 
Outstanding and exercisable at June 30, 2017   380,000   $4.00 

 

Series B Preferred Stock Warrants

 

Outstanding preferred stock warrants to purchase the Company’s Series B Preferred Stock at June 30, 2017 have a remaining contractual life of 1.9 years. A summary of the status of the Company's outstanding Series B Preferred Stock warrants are as follows:

 

       Weighted 
   Preferred   Average 
   Stock   Exercise 
   Warrants   Price 
           
Outstanding and exercisable at December 31, 2016   3,250,000   $3.00 
For the period ended June 30, 2017          
Granted   -    - 
Exercised   -    - 
Expired   -    - 
Outstanding and exercisable at June 30, 2017   3,250,000   $3.00 

 

 

 Page 23 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 June 30, 2017

 

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

Registration and Participation Rights

 

As of June 30, 2017, the Company has not received a demand notice in connection with any of the Company’s various registration rights agreements. 

 

NOTE 7 – CAPITAL LEASE OBLIGATIONS 

 

The Company’s subsidiary, InsPro LLC, has entered into several capital lease obligations to purchase equipment used for operations. The Company has the option to purchase the equipment at the end of each lease agreement for one dollar. The underlying assets and related depreciation were included in the appropriate fixed asset category, and related depreciation account.

 

Property and equipment includes the following amounts for leases that have been capitalized:

 

   Useful Life (Years)  June 30, 2017   December 31, 2016 
            
Computer equipment and software  3  $1,576,226   $1,576,226 
Leasehold improvements  3   15,011    15,011 
       1,591,237    1,591,237 
Less accumulated depreciation      (1,376,007)   (1,260,944)
      $215,230   $330,293 

 

Future minimum payments required under capital leases at June 30, 2017, are as follows:

 

Six months ending December 31, 2017  $71,093 
2018   130,693 
2019   30,307 
Total future payments   232,093 
Less amount representing interest   14,306 
Present value of future minimum payments   217,787 
Less current portion   136,901 
Long-term portion  $80,886 

 

 

 Page 24 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

 

 

 

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 6 months of employment with the Company. An 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 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 $36,984 and $43,137 for the three months ended June 30, 2017 and 2016, respectively.

  

NOTE 9 – COMMITTMENTS AND CONTINGENCIES

 

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 North Radnor-Chester Road, Radnor, Pennsylvania. The term of the lease commenced on November 1, 2006, which was the date the Company, with the Landlord’s prior consent, assumed possession of the premises and the date the Landlord tendered possession of the premises to the Company following the substantial completion of the improvements required to be made by the Landlord under the lease agreement, and will expire on the last day of the 125th month following the commencement of the lease term. The annual rent increased 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 was 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 lease expired on March 31, 2017, in accordance with the terms of the lease.

 

On September 14, 2007, InsPro LLC entered into a lease agreement (the “Lease Agreement”) with BPG Officer VI Baldwin Tower L.P. (“BPG”). On April 28, 2015, InsPro LLC and BPG entered into a fifth amendment to the Lease Agreement whereby InsPro LLC and BPG agreed to amend the Lease Agreement to increase the leased office space by 6,801 rentable square feet effective April 1, 2015, through March 31, 2016, at an incremental monthly rent of $10,000. 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. On June 7, 2017, InsPro LLC and Baldwin Tower Office Building, LLC (“Landlord”) , which is the new owner and landlord for the Company’s Eddystone office building, entered into a seventh amendment to the Lease Agreement whereby InsPro LLC and Landlord agreed to amend the Lease Agreement to extend the term through January 31, 2019 for 17,567 of rentable square feet at a monthly cost of $30,010 for the period February 1, 2018 through January 31, 2019.

 

Future minimum payments required under operating leases and service agreements at June 30, 2017, are as follows:

 

Six months ending December 31, 2017  $517,618 
2018   596,704 
2019   255,118 
2020   15,932 
thereafter   - 
Total  $1,385,372 

 

 Page 25 

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

June 30, 2017

 

 

NOTE 9 – COMMITTMENTS AND CONTINGENCIES (Continued) 

 

The Company leases certain real and personal property under non-cancelable operating leases. Rent expense was $111,825 and $142,910 for the three months ended June 30, 2017 and 2016, respectively. Rent expense was $230,309 and $330,567 for the six months ended June 30, 2017 and 2016, respectively.

 

Mr. Robert Oakes resigned as an executive employee effective June 30, 2017. Pursuant to Mr. Oakes’ employment agreement, Mr. Oakes will be entitled to receive; (i) continuation of his $300,000 per year base salary for a period of 12 months in accordance with the Company's normal payroll practices, less any applicable income tax withholding required under federal or state law, and subject to Section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance issued there under, and (ii) continuation for a period of 18 months after the date of termination of the benefits under benefit plans extended from time to time by the Company to its senior executives. As of June 30, 2017, the Company recorded a severance accrual connection with Mr. Oakes termination in the amount of $334,168, which is recorded in selling, general and administrative expenses and accrued liabilities. Pursuant to Mr. Oakes’ employment agreement, he is subject to non-competition and non-solicitation covenants during the term of his employment agreement and for a period of one year following his termination.

 

NOTE 10 – SUBSEQUENT EVENTS

 

Rights Offering

 

On July 21, 2017 the Company filed a registration statement for a rights offering on form S-1/A, which the Commission declared effective on July 21, 2017, to distribute to shareholders excluding residents of California at no charge, one non-transferable subscription right for each 9,651 shares of our Common Stock, 483 shares of our Series A Preferred Stock, 483 shares of our Series B Preferred Stock and 483 shares of our Series C Preferred Stock owned as of July 17, 2017, 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 is fully subscribed the gross proceeds from the rights offering will be approximately $1 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 2017 Private Placements.

 

The basic subscription right entitled the holder to purchase one unit (“Subscription Unit”) at a subscription price of $50. A Subscription Unit consisted of 25 shares of Series C Preferred Stock. In the event that a holder of a Subscription Unit purchases all of the basic Subscription Units available to the holder then pursuant to their basic subscription right, the holder will have 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.

 

The subscription rights will expire on August 29, 2017 unless the Company extends the rights.

 

 Page 26 

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain of the statements contained in this Quarterly Report on Form 10-Q, including in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) 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 the Company’s operations and other similar statements. Various factors, including competitive pressures, regulatory changes, customer defaults or insolvencies, adverse resolution of any contract or other disputes with customers, or the loss of one or more key client relationships, 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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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.

 

We qualify all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.

 

 Page 27 

 

 

Item 2. 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 wholly owned subsidiary InsPro Technologies, LLC (“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 health insurance carriers and third party administrators. We market InsPro Enterprise as a licensed software application, and we realize revenue from license fees, application service provider fees, software maintenance fees and professional services.

 

Critical Accounting Policies

 

Financial Reporting Release No. 60, which was released by the Securities and Exchange Commission (the “Commission”), encourages all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Our consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the consolidated financial statements.

 

Use of Estimates – Management’s Discussion and Analysis is based upon the Company’s consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). 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 2017 and 2016 include the allowance for doubtful accounts, 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.

 

The Company offers InsPro Enterprise on a licensed and an application service provider (“ASP”) basis. An InsPro Enterprise software license entitles the purchaser a perpetual license to a copy of the InsPro Enterprise installed at a single client location, which may be used to drive a production and model office instance of the application. The ASP hosting service enables a client to lease the InsPro Enterprise, paying only for that capacity required to support their business. ASP clients access an instance of InsPro Enterprise installed on clients’ servers or on the Company’s servers located at a third party’s site.

 

Software maintenance fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and the InsPro Enterprise Help Desk.

 

Professional services are generally associated with the implementation of 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.

 

 Page 28 

 

 

The Company’s revenue is generally recognized under FASB ASC 985-605 (“ASC 985-605”). For software arrangements involving multiple elements, we allocate revenue to each element based on the relative fair value or the residual method, as applicable using vendor specific objective evidence to determine fair value, which is based on prices charged when the element is sold separately. Software revenue accounted for under ASC 985-605 is recognized when persuasive evidence of an arrangement exists, the software is delivered in accordance with all terms and conditions of the customer contracts, the fee is fixed or determinable and collectability is probable. Revenue related to post-contract customer support (“PCS”), including technical support and unspecified when-and-if available software upgrades, is recognized ratably over the PCS term. Under ASC 985-605, if fair value does not exist for any undelivered element, revenue is not recognized until the earlier of (i) delivery of such element or (ii) when fair value of the undelivered element is established, unless the undelivered element is a service, in which case revenue is recognized as the service is performed once the service is the only undelivered element.

 

We recognize revenues from software license agreements when persuasive evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. We consider fees relating to arrangements with payment terms extending beyond one year to not be fixed or determinable and revenue for these arrangements is recognized as payments become due from the customer. In software arrangements that include more than one InsPro EnterpriseTM module, we allocate the total arrangement fee among the modules based on the relative fair value of each of the modules.

 

License revenue allocated to software products generally is recognized upon delivery of the products or deferred and recognized in future periods to the extent that an arrangement includes one or more elements to be delivered at a future date and for which fair values have not been established. Revenue allocated to maintenance agreements is recognized ratably over the maintenance term and revenue allocated to training and other service elements is recognized as the services are performed.

 

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

 

We review the carrying value of property and equipment and intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

 

 Page 29 

 

 

 

RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2017 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2016

 

Revenues

 

For the three months ended June 30, 2017 (“Second Quarter 2017”) and for the three months ended June 30, 2016, (“Second Quarter 2016”) our revenues include the following:

 

   For the Three Months Ended June 30,   Increase (Decrease) 
   2017   2016   Dollars   Percentage 
                     
Professional services, gross  $2,186,420   $3,435,439   $(1,249,019)   -36.4%
Stock-based fees paid to client   -    (1,299,963)   1,299,963    -100.0%
ASP revenue   1,942,592    1,819,472    123,120    6.8%
Maintenance revenue   365,023    446,196    (81,173)   -18.2%
Sale of equipment   -    20,126    (20,126)   -100.0%
Sub-leasing and other revenue   -    18,030    (18,030)   -100.0%
                     
Total  $4,494,035   $4,439,300   $54,735    1.2%

 

·In Second Quarter 2017 our professional services revenue, gross decreased primarily as a result of lower post implementation services to two existing clients and lower implementation services to the Company’s largest client. 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 Warrant has 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 Second Quarter 2017 our ASP revenue increased as a result of increased fees from ongoing and recent implementations of InsPro Enterprise from several existing clients. ASP hosting service enables a client to either lease InsPro Enterprise software, paying only for that capacity required to support their business, or for a client to outsource the operation of their licensed InsPro Enterprise installation to the Company. ASP hosting clients’ access InsPro Enterprise installed on clients’ servers or on the Company’s servers located at a third party’s site.

 

·In Second Quarter 2017 our maintenance revenue decreased primarily as a result of the loss of fees from two former clients.

 

·In Second Quarter 2016 we sold equipment to a client as part of their implementation of InsPro Enterprise.

 

 Page 30 

 

 

 

·In Second Quarter 2016 sub-leasing and other revenue consisted of reimbursements of office and administrative expenses pertaining to various agreements with related and unrelated parties pertaining to our former Radnor office.

 

Cost of Revenues

 

Our cost of revenues consisted of the following:

 

   For the Three Months Ended June 30,   Increase (Decrease) 
   2017   2016   Dollars   Percentage 
                     
Compensation, employee benefits and related taxes  $1,359,970   $1,797,351   $(437,381)   -24.3%
Professional fees   1,619,427    2,555,576    (936,149)   -36.6%
Depreciation   61,341    96,093    (34,752)   -36.2%
Rent, utilities, telephone and communications   93,714    97,663    (3,949)   -4.0%
Other cost of revenues   82,726    115,372    (32,646)   -28.3%
                     
   $3,217,178   $4,662,055   $(1,444,877)   -31.0%

 

·In Second Quarter 2017 our salaries, employee benefits and related taxes component of cost of revenues decreased as compared to Second Quarter 2016 primarily as a result of decreased employee staffing.

 

·In Second Quarter 2017 our professional fees component of cost of revenues decreased as compared to Second Quarter 2016 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 EnterpriseTM, combined with decreased recruiting expenses.

 

·In Second Quarter 2017 our depreciation expense component of cost of revenues decreased as compared to Second Quarter 2016 as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for such assets.

 

·In Second Quarter 2017 our other cost of revenues component of cost of revenues decreased as compared to Second Quarter 2016 primarily due to lower travel expense. Other cost of revenues consisted of the cost of 3rd party licensed software resold to clients, equipment sold to clients, computer processing incurred primarily to provide ASP hosting services, hardware and software, travel and entertainment, and office expenses.

 

Gross Profit

 

As a result of the aforementioned factors, we reported a gross profit of $1,276,857 in Second Quarter 2017, as compared to a gross loss of $222,755 in Second Quarter 2016. The results from operations in Second Quarter 2017 were favorably impacted by lower employee and IT consulting staffing as compared to Second Quarter 2016 primarily as a result of the implementation of cost reduction initiatives.

 

 

 Page 31 

 

 

Selling, General and Administrative Expenses

 

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

 

   For the Three Months Ended June 30,   Increase (Decrease) 
   2017   2016   Dollars   Percentage 
                     
Compensation, employee benefits and related taxes  $1,228,003   $798,352   $429,651    53.8%
Advertising and other marketing   7,687    7,734    (47)   -0.6%
Depreciation   27,869    31,886    (4,017)   -12.6%
Rent, utilities, telephone and communications   51,840    103,277    (51,437)   -49.8%
Professional fees   214,560    143,750    70,810    49.3%
Other general and administrative   192,949    190,946    2,003    1.0%
                     
   $1,722,908   $1,275,945   $446,963    35.0%

 

·In Second Quarter 2017 our salaries, employee benefits and related taxes increased as compared to Second Quarter 2016 primarily due to severance expense pertaining to the resignation of Robert Oakes in Second Quarter 2017.

 

·In Second Quarter 2017 our depreciation expense decreased as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for such assets.

 

·In Second Quarter 2017 our rent, utilities, telephone and communications expense decreased as compared to Second Quarter 2016 primarily due to the elimination of our former Radnor office.

 

·In Second Quarter 2017 our professional fees increased as compared to Second Quarter 2016 primarily due to higher executive recruiting expenses and higher legal expenses in connection with the company’s 2017 rights offering.

  

Operating loss from continuing operations

 

As a result of the aforementioned factors, we reported a loss from continuing operations of $446,051 in Second Quarter 2017, as compared to a loss of $1,498,700 in Second Quarter 2016.

 

Other income (expenses)

 

Interest expense decreased in the Second Quarter 2017 as compared to the in the Second Quarter 2016 primarily due to interest on notes payable. Interest expense is attributable to interest on the capital leases and note payable for premium financing on a portion of the Company’s insurance coverages.

 

 

 Page 32 

 

 

Income from discontinued operations

 

Results from discontinued operations consisted of the following:

 

 

   For the Three Months Ended June 30,   Increase (Decrease) 
   2017   2016   Dollars   Percentage 
Revenues:                
Commission and other revenue from carriers  $2,029   $2,492   $(463)   -18.6%
eHealth Agreement   12,059    30,264    (18,205)   -60.2%
    14,088    32,756    (18,668)   -57.0%
Operating expenses:                    
Other general and administrative   9,636    7,479    2,157    28.8%
    9,636    7,479    2,157    28.8%
Income from discontinued operations  $4,452   $25,277   $(20,825)   -82.4%

 

Revenues and income from discontinued operations in the Second Quarter 2017 decreased as compared to the Second Quarter 2016 due to the declines in our discontinued telesales call center produced agency business. We reported a gain from discontinued operations of $0 per share in Second Quarter 2017 and Second Quarter 2016.

 

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 $445,861, or $0.01 net loss per share, in Second Quarter 2017, as compared to a net loss of $1,479,904, or $0.04 net loss per share in Second Quarter 2016.

 

RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2017 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2016

 

Revenues

 

For the six months ended June 30, 2017 (“2016 To Date”) and for the six months ended June 30, 2016 (“2016 To Date”), our revenues include the following:

 

   For the Six Months Ended June 30,   Increase (Decrease) 
   2017   2016   Dollars   Percentage 
                     
Professional services, gross  $4,984,671   $8,062,497   $(3,077,826)   -38.2%
Stock-based fees paid to client   -    (1,299,963)   1,299,963    -100.0%
ASP revenue   3,758,432    3,509,621    248,811    7.1%
Sales of software licenses   -    10,000    (10,000)   -100.0%
Maintenance revenue   797,698    898,260    (100,562)   -11.2%
Sale of equipment   -    20,126    (20,126)   -100.0%
Sub-leasing and other revenue   -    36,030    (36,030)   -100.0%
                     
Total  $9,540,801   $11,236,571   $(1,695,770)   -15.1%

 

 Page 33 

 

 

·In 2017 To Date our professional services revenue, gross decreased primarily as a result of lower post implementation services to two large existing clients. 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 Warrant has 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 2017 To Date our ASP revenue increased as a result of increased fees from ongoing and recent implementations of InsPro Enterprise from several existing clients. ASP hosting service enables a client to either lease InsPro Enterprise software, paying only for that capacity required to support their business, or for a client to outsource the operation of their licensed InsPro Enterprise installation to the Company. ASP hosting clients access InsPro Enterprise installed on clients’ servers or on the Company’s servers located at a third party’s site.

 

·In 2016 To Date we earned $10,000 of license fee revenue, which included the resale of third party software to an InsPro Enterprise client.

 

·In 2017 To Date our maintenance revenue decreased primarily as a result of the loss of fees from two former clients.

 

·In Second Quarter 2016 we sold equipment to a client as part of their implementation of InsPro Enterprise.

 

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

 

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Cost of Revenues

 

Our cost of revenues consisted of the following:

 

   For the Six Months Ended June 30,   Increase (Decrease) 
   2017   2016   Dollars   Percentage 
                     
Compensation, employee benefits and related taxes  $3,280,393   $4,029,706   $(749,313)   -18.6%
Professional fees   3,534,411    5,567,930    (2,033,519)   -36.5%
Depreciation   149,490    196,307    (46,817)   -23.8%
Rent, utilities, telephone and communications   200,202    235,333    (35,131)   -14.9%
Other cost of revenues   161,651    212,349    (50,698)   -23.9%
                     
   $7,326,147   $10,241,625   $(2,915,478)   -28.5%

 

·In 2017 To Date our salaries, employee benefits and related taxes component of cost of revenues decreased as compared to 2016 To Date primarily as a result of decreased employee staffing.

 

·In 2017 To Date our professional fees component of cost of revenues decreased primarily 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 2017 To Date our depreciation expense component of cost of revenues decreased as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for these assets.

 

·In 2017 To Date our rent, utilities, telephone and communications expense decreased as compared to 2016 To Date primarily due to lower rented space pertaining to our Eddystone office.

 

·In 2017 To Date our other cost of revenues component of cost of revenues decreased primarily due to lower travel expenses. 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.

 

Gross (Loss) Profit

 

As a result of the aforementioned factors, we reported a gross profit of $2,214,654 in 2017 To Date, as compared to a gross profit of $994,946 in 2016 To Date. The results from operations in 2017 To Date were favorably impacted by lower employee and IT consulting staffing as compared to Second Quarter 2016 primarily as a result of the implementation of cost reduction initiatives.

 

 

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Selling, General and Administrative Expenses

 

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

 

   For the Six Months Ended June 30,   Increase (Decrease) 
   2017   2016   Dollars   Percentage 
                     
Compensation, employee benefits and related taxes  $2,360,961   $1,806,438   $554,523    30.7%
Advertising and other marketing   16,422    49,454    (33,032)   -66.8%
Depreciation   62,658    57,307    5,351    9.3%
Rent, utilities, telephone and communications   151,353    204,208    (52,855)   -25.9%
Professional fees   352,860    404,552    (51,692)   -12.8%
Other general and administrative   375,152    384,121    (8,969)   -2.3%
                     
   $3,319,406   $2,906,080   $413,326    14.2%

 

·In 2017 To Date our salaries, employee benefits and related taxes increased primarily due to severance expense pertaining to the termination of a former executive in First Quarter 2017 and the resignation of Mr. Oakes in Second Quarter 2017.

 

·In 2017 To Date our advertising and other marketing expenses decreased as a result of reduced marketing activities.

 

·In 2017 To Date our depreciation expense increased as compared to First Quarter 2016 as a result of a greater percentage allocated to selling, general and administrative expense and a lesser percentage of depreciation allocated to cost of revenues.

 

·In 2017 To Date our rent, utilities, telephone and commissions decreased as compared to First Quarter 2016 due the elimination of our former Radnor office.

 

·In 2017 To Date professional fees decreased primarily due to lower legal expenses in part due to the company’s rights offering in First Quarter 2016.

  

Operating loss from continuing operations

 

As a result of the aforementioned factors, we reported a loss from continuing operations of $1,104,752 in 2017 To Date, as compared to $1,911,134 in 2016 To Date.

  

Other income (expenses)

 

Interest expense decreased in 2017 To Date primarily due to lower interest on capital leases. Interest expense is attributable to interest on the Company’s notes payable for premium financing on a portion of the Company’s insurance coverages and capital leases.

 

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Income from discontinued operations

 

Results from discontinued operations were as follows:

 

   For the Six Months Ended June 30,   Increase (Decrease) 
   2017   2016   Dollars   Percentage 
Revenues:                
Commission and other revenue from carriers  $4,407   $5,559   $(1,152)   -20.7%
Transition policy commission pursuant to the Agreement   27,993    46,412    (18,419)   -39.7%
    32,400    51,971    (19,571)   -37.7%
Operating expenses:                    
Other general and administrative   15,635    13,478    2,157    16.0%
    15,635    13,478    2,157    16.0%
Income from discontinued operations  $16,765   $38,493   $(21,728)   -56.4%

 

Revenues and income from discontinued operations decreased due to the declines in our discontinued telesales call center produced agency business.

 

Net loss

 

As a result of these factors discussed above, we reported a net loss of $1,092,163, or $0.03 net loss per share, in 2017 To Date as compared to a net loss of $1,883,100, or $0.05 net loss per share in 2016 To Date.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

At June 30, 2017, we had a cash balance of $3,177,992 and a working capital deficit of $1,230,758.

 

Net cash used by operations was $2,085,013 in 2017 To Date as compared to $739,185 in 2016 To Date. Impacting our cash flow from operations was our net loss of $1,092,163 in 2017 To Date as compared to our net loss of $1,883,100 in 2016 To Date and:

 

·Decreases in accounts receivable of $159,938 in 2017 To Date, which is primarily the result of the collection of billings to clients for professional services incurred in 2016.

 

·Decreases in accounts payable of $2,948,537 in 2017 To Date, which is primarily the result of payments of amounts to outside IT consulting firms that were incurred prior to 2017.

 

·Increases in accrued expenses of $414,804 in 2017 To Date, which is primarily the result of accrued severance expense pertaining to the termination of former executives in 2017 To Date.

 

·Increases in deferred revenue of $1,071,417 in 2017 To Date, which is primarily the result of annual maintenance fees and professional services, which were not earned in 2017 To Date.

 

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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 $212,148 and $253,614 in 2017 To Date and 2016 To Date, respectively.

 

·Recorded stock-based compensation expense of $107,760 and $183,378 in 2017 To Date and 2016 To Date, respectively.

 

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

 

Net cash used by investing activities in 2017 To Date was $19,835 as compared to $11,633 in 2016 To Date.

 

Net cash provided by financing activities in 2017 To Date was $2,121,223 as compared to cash used in financing activities in 2016 To Date of $162,753.

 

·On April 20, 2017, the Company completed a private placement (the “Private Placement”) with The Co-Investment Fund II, L.P. (“Co-Investment”), which hold more than 5% of our common stock. Donald Caldwell, who is the CEO and chairman of the board of directors of the Company, is the CEO for Cross Atlantic Capital Partners, Inc., which is the managing partner of Co-Investment. The Company issued and Co-Investment purchased 1,000,000 shares of our Series C Convertible Preferred Stock at a per share price of $2.00 for an aggregate total investment of $2,000,000 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.

 

oThe 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 500,000 shares of Series C Preferred Stock Units to other existing stockholders within 90 days following the Closing on substantially the same terms and conditions described above and as set forth in the Purchase Agreement.

 

oThe Purchase Agreement also provides for a customary participation right for Co-Investment, subject to certain exceptions and limitations, which grants Co-Investment 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. Co-Investment may participate in such financings at a level based on Co-Investment’s ownership percentage of the Company on a fully-diluted basis prior to such financing.

 

 Page 38 

 

  

·On May 11, 2017, the Company completed a private placement (the “Second Private Placement”) with Azeez Enterprises, L.P., which hold more than 5% of our Series C Preferred Stock. Michael Azeez is a member of the board of directors of the Company and is the managing partner of Azeez Enterprises, L.P. The Company issued and Azeez Enterprises, L.P. purchased 75,000 shares of our Series C Convertible Preferred Stock at a per share price of $2.00 for an aggregate total investment of $150,000 pursuant to the terms of a securities purchase agreement at essentially the same terms as those contained in the Purchase Agreement (the “Second Purchase Agreement”). Also as part of the Second Private Placement and Second Purchase Agreement with John Scarpa, which hold more than 5% of our Series B Preferred Stock. The Company issued and John Scarpa purchased 75,000 shares of our Series C Convertible Preferred Stock at a per share price of $2.00 for an aggregate total investment of $150,000 pursuant to the terms of the Second Purchase Agreement.

 

·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.

 

·Payments on notes payable pertain to 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.

 

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.

 

Liquidity and Other Considerations

 

During the six months ended June 30, 2017, the Company’s net loss was $1,092,163 and cash used in operations was $2,085,013. As of June 30, 2017, the Company had $3,177,992 of cash, a working capital deficit of $1,230,758 and the Company’s shareholder deficit was $2,485,618. During 2016 the Company implemented cost reduction initiatives, which resulted in the reduction of expenses in 2016 as compared to 2015. During the six months ended June 30, 2017, the Company implemented additional cost reduction initiatives, which resulted in the reduction of cost of revenues of $2,915,478 as compared to the same period in 2016. During the second quarter of 2017 the Company obtained $2,300,000 of cash from existing stockholders, which is described in Note 5 – Transactions with Related Parties.

 Page 39 

 

 

 

Our liquidity needs for the next 12 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.

 

As disclosed in Note 10 – Subsequent Events we are in the process of executing a rights offering to the Company’s stockholders whereby the Company will offer, subject to the Company obtaining all necessary regulatory approvals, the non-transferrable right for stockholders to purchase shares of the Company’s Series C Preferred Stock at the same price and on substantially the same terms and conditions issued by the Company in connection with the Private Placement and the Second Private Placement.  The details of the rights offering was disclosed in our prospectus filed with the SEC on July 21, 2017.

 

 Page 40 

 

 

Item 4. Controls and Procedures

 

(a) Evaluation of 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 Chief Executive 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 the results of such assessment, management has concluded that the our disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by us 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 our principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required 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.

 

(b) Change in Internal Control over Financial Reporting.

 

There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II.

OTHER INFORMATION

 

Item 1.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 6.Exhibits

 

Exhibit No.   Description
31.1   Chief Executive Officer’s Rule 13a-14(a)/15d-14(a) Certification *
31.2   Chief Financial Officer’s Rule 13a-14(a)/15d-14(a) Certification *
32.1   Chief Executive Officer’s Section 1350 Certification †
32.2   Chief Financial Officer’s Section 1350 Certification †
101.INS   XBRL Instance Document*
101.SCH   XBRL Taxonomy Extension Schema Document*
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB   XBRL Taxonomy Extension Label Linkbase Document*
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document*

 

 

* Filed herewith.

† Furnished herewith.

 Page 41 

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

Date: August 14, 2017 INSPRO TECHNOLOGIES CORPORATION  
       
       
       
  By: /s/ ANTHONY R. VERDI  
    Anthony R. Verdi  
    Chief Financial Officer  
    (Principal Financial Officer)  

 

 

 Page 42 

 

 

EXHIBIT INDEX

 

Exhibit No.   Description
31.1   Principal Executive Officer’s Rule 13a-14(a)/15d-14(a) Certification *
31.2   Chief Financial Officer’s Rule 13a-14(a)/15d-14(a) Certification *
32.1   Principal Executive Officer’s Section 1350 Certification †
32.2   Chief Financial Officer’s Section 1350 Certification †
101.INS   XBRL Instance Document*
101.SCH   XBRL Taxonomy Extension Schema Document*
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB   XBRL Taxonomy Extension Label Linkbase Document*
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document*

 

 

* Filed herewith.

† Furnished herewith.

 

 

 Page 43