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 March 31, 2012

 

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 333-123081

 

                                                    

 

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.)

  

150 North Radnor-Chester Rd.

Radnor Financial Center, Suite B101

Radnor, Pennsylvania 19087

(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  ¨    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” and “smaller reporting 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

 

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 May 15, 2012, 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
		Consolidated Balance Sheets as of March 31, 2012 (UNAUDITED) and December 31, 2011	4
		Consolidated Statements of Operations (UNAUDITED) for the three months ended March 31, 2012 and 2011	5
		Consolidated Statements of Cash Flows (UNAUDITED) for the three months ended March 31, 2012 and 2011	6
		Notes to UNAUDITED Consolidated Financial Statements	7
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 4		Controls and Procedures	31

 

PART II
OTHER INFORMATION

 

Item 1		Legal Proceedings	32
Item 6		Exhibits	33
		Signatures	34

 

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2012				December 31, 2011
		(Unaudited)				(1)
ASSETS
CURRENT ASSETS:
Cash		$	3,895,721			$	3,702,053
Accounts receivable, net			1,534,617				1,506,234
Tax receivable			766				766
Prepaid expenses			91,742				116,649
Other current assets			499				2,139
Assets of discontinued operations			71,793				104,002
Total current assets			5,595,138				5,431,843
Property and equipment, net			494,446				496,692
Intangibles, net			173,366				260,050
Other assets			80,608				80,608
Total assets		$	6,343,558			$	6,269,193
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable		$	-			$	8,586
Accounts payable			716,201				644,563
Accrued expenses			349,766				521,383
Current portion of capital lease obligations			93,631				109,872
Deferred revenue			1,401,200				622,500
Total current liabilities			2,560,798				1,906,904
LONG TERM LIABILITIES:
Warrant liability			1,549,681				1,674,226
Capital lease obligations			100,477				113,943
Total long term liabilities			1,650,158				1,788,169
SHAREHOLDERS' EQUITY:
Preferred stock ($.001 par value; 20,000,000 shares authorized)
Series A convertible preferred stock; 3,437,500 shares authorized, 1,276,750
shares issued and outstanding (liquidation value $12,767,500)			2,864,104				2,864,104
Series B convertible preferred stock; 5,000,000 shares authorized, 2,797,379
shares issued and outstanding (liquidation value $8,392,137)			5,427,604				5,427,604
Common stock ($.001 par value; 300,000,000 shares authorized, 41,543,655
shares issued and outstanding)			41,543				41,543
Additional paid-in capital			37,063,696				37,038,318
Accumulated deficit			(43,264,345	)			(42,797,449	)
Total shareholders' equity			2,132,602				2,574,120
Total liabilities and shareholders' equity		$	6,343,558			$	6,269,193

 

(1) Derived from audited financial statements.

 

See accompanying notes to unaudited consolidated financial statements.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		For the Three Months Ended March 31,
		2012				2011
		(Unaudited)				(Unaudited)
Revenues		$	2,392,927			$	2,342,869
Cost of revenues			2,025,949				1,658,861
Gross profit			366,978				684,008
Selling, general and administrative expenses:
Salaries, employee benefits and related taxes			561,578				653,122
Advertising and other marketing			32,532				23,477
Depreciation and amortization			207,835				181,718
Rent, utilities, telephone and communications			91,324				97,448
Professional fees			101,758				104,537
Other general and administrative			116,468				125,415
			1,111,495				1,185,717
Loss from operations			(744,517	)			(501,709	)
Gain from discontinued operations			153,842				219,020
Other income (expense):
Gain on the change of the fair value of warrant liability			124,545				309,294
Interest income			2,284				8,301
Interest expense			(3,050	)			(7,265	)
Total other income (expense)			123,779				310,330
Net income (loss)		$	(466,896	)		$	27,641
Net income (loss) per common share - basic and diluted:
Income (loss) from operations		$	(0.01	)		$	(0.01	)
Gain from discontinued operations			0.00				0.01
Net income (loss) per common share		$	(0.01	)		$	-
Weighted average common shares outstanding - basic and diluted			41,543,655				41,543,655

 

See accompanying notes to unaudited consolidated financial statements.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Three Months Ended March 31,
		2012				2011
		(Unaudited)				(Unaudited)
Cash Flows From Operating Activities:
Net (loss) income		$	(466,896	)		$	27,641
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			207,835				181,718
Stock-based compensation			25,377				17,777
(Gain) on change of fair value of warrant liability			(124,545	)			(309,294	)
Changes in assets and liabilities:
Accounts receivable			(28,383	)			(860,523	)
Tax receivable			-				2,840
Prepaid expenses			24,907				4,527
Other current assets			1,640				(316	)
Accounts payable			71,638				(28,720	)
Accrued expenses			(171,617	)			99,451
Due to related parties			-				(8,370	)
Deferred revenue			778,700				809,613
Assets of discontinued operations			32,209				(215,012	)
Net cash provided (used) in operating activities			350,865				(278,668	)
Cash Flows From Investing Activities:
Purchase of property and equipment			(118,904	)			(29,816	)
Net cash used in investing activities			(118,904	)			(29,816	)
Cash Flows From Financing Activities:
Payments on note payable			(8,586	)			(17,313	)
Payments on capital leases			(29,707	)			(43,943	)
Restricted cash in connection with letters of credit			-				1,152,573
Net cash (used) provided by financing activities			(38,293	)			1,091,317
Net increase in cash			193,668				782,833
Cash - beginning of the period			3,702,053				4,429,026
Cash - end of the period		$	3,895,721			$	5,211,859
Supplemental Disclosures of Cash Flow Information
Cash payments for interest		$	3,050			$	7,265

 

See accompanying notes to unaudited consolidated financial statements.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 

Basis of presentation

 

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, 2011 and notes thereto and other pertinent information contained in the Annual Report on Form 10-K of InsPro Technologies Corporation (the “Company”, “we”, “us” or “our”) as filed with the Securities and Exchange Commission (the “Commission”).

 

The consolidated financial statements of the Company include the Company and its subsidiaries. All material inter-company balances and transactions have been eliminated.

 

For purposes of comparability, certain prior period amounts have been reclassified to conform to the 2012 presentation.

 

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results for the full fiscal year ending December 31, 2012.

 

Organization

 

InsPro Technologies, LLC, our wholly owned subsidiary (“InsPro Technologies”) is a provider of comprehensive, web-based insurance administration software applications. InsPro Technologies’ flagship software product is InsPro Enterprise, which was introduced in 2004. InsPro Technologies offers InsPro Enterprise on 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. InsPro Technologies realizes revenue from the sale of software licenses, application service provider fees, software maintenance fees and professional services.

 

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 2012 and 2011 include the allowance for doubtful accounts, stock-based compensation, the useful lives of property and equipment and intangible assets, warrant liability and revenue recognition.

 

Cash and cash equivalents

 

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

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

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

 

 

Accounts receivable

 

The Company has a policy of establishing an allowance for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. At March 31, 2012 and December 31, 2011, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amount of $0. The Company had no write-offs of accounts receivable during the three months ended March 31, 2012 and 2011.

 

Accounts receivable from the two largest InsPro Technologies clients accounted for 21% and 20%, respectively, of the Company’s total accounts receivable balance at March 31, 2012.

 

Fair value of financial instruments

 

The carrying amounts of financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and capital leases approximated fair value as of March 31, 2012 and December 31, 2011, because of the relatively short-term maturity of these instruments and their market interest rates.

 

Effective January 1, 2008, the Company adopted Financial Accounting Standards Board (the “FASB”) ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data.
	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

The Company measured its warrant liability using Level 3 inputs as defined by ASC 820.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

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

 

 

Property and equipment

 

Property and equipment are carried at cost. The cost of repairs and maintenance are 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 FASB 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.

 

Intangible assets

 

Intangible assets consist of assets acquired in connection with the acquisition of InsPro Technologies and costs incurred in connection with the development of the Company’s software. See Note 4 – Intangible Assets.

 

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.

 

Warrant liability

 

For the three months ended March 31, 2012, the Company recorded a gain on the change in fair value of derivative liability of $124,545 to mark-to-market for the decrease in fair value of the warrants during the three months ended March 31, 2012.

 

The Company determined the fair value of the warrant liability at March 31, 2012 was $1,549,681. The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions: dividend yield: 0%, risk free rate: 0.15% and the following:

 

Warrant Issue Date		Warrant Exercise Price				Aggregate Number of Warrants				Expected Term (Years) of Warrants				Volatility				Fair Value
1/15/2009		$	0.15				26,666,667				1.8				518	%		$	665,839
3/26/2010			0.15				7,380,000				3.0				585	%			184,500
9/30/2010			0.15				18,000,010				3.5				612	%			450,000
11/29/2010			0.15				2,000,000				3.7				618	%			50,000
12/22/2010			0.15				7,973,780				3.7				619	%			199,342
																		$	1,549,681

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

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

 

 

Income taxes

 

The Company accounts for income taxes under the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

Earnings (loss) per common share

 

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Diluted loss per common share is not presented because it is anti-dilutive. The Company's common stock equivalents at March 31, 2012, include the following:

 

Series A convertible preferred stock issued and outstanding	25,535,000
Series B convertible preferred stock issued and outstanding	55,947,580
Options, issued, outstanding and exercisable	4,660,000
Warrants to purchase common stock, issued, outstanding and exercisable	87,020,457
Warrants to purchase series A convertible preferred stock, issued, outstanding and exercisable	6,000,000
	179,163,037

 

Revenue recognition

 

InsPro Technologies offers InsPro Enterprise software on a licensed and an ASP basis. An InsPro Enterprise license entitles the purchaser a perpetual license to a copy of the InsPro Enterprise installed at a single client location.

 

Alternatively, ASP hosting service enables a client to lease InsPro Enterprise, paying only for that capacity required to support their business. ASP clients access InsPro Enterprise installed on InsPro Technologies’ owned servers located at InsPro Technologies’ office or at a third party’s site.

 

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

 

InsPro Technologies’ consulting and implementation services are generally associated with the implementation of an InsPro Enterprise instance for either an ASP or licensed client, and cover such activity as InsPro Enterprise installation, configuration, modification of InsPro Enterprise functionality, client insurance document design and system documentation.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

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

 

 

InsPro Technologies’ revenue is generally recognized under ASC 985-605. For software arrangements involving multiple elements, 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 collectibility is probable. Revenue related to post-contract customer support (“PCS”), including technical support and unspecified when-and-if available software upgrades, is recognized ratably over the PCS term. Under ASC 985-605, if fair value does not exist for any undelivered element, revenue is not recognized until the earlier of (i) delivery of such element or (ii) when fair value of the undelivered element is established, unless the undelivered element is a service, in which case revenue is recognized as the service is performed once the service is the only undelivered element.

 

The Company recognizes revenue from software license agreements when persuasive evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectibility 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 module, the Company allocates the total arrangement fee among the modules based on the relative fair value of each of the modules.

 

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

 

The unearned portion of 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.

 

Cost of revenues

 

Cost of revenues includes direct labor and associated costs for employees and independent contractors performing InsPro Enterprise design, development, implementation, testing together with customer management, training and technical support, as well as facilities, equipment and software costs.

 

Advertising and other marketing

 

Advertising and other marketing costs are expensed as incurred.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

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

 

 

Concentrations of credit risk

 

The Company maintains its cash in bank deposit accounts, which exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation (“FDIC”). In 2010 the FDIC insurance coverage limit was permanently increased to $250,000 per depositor, per institution as a result of the Dodd-Frank Wall Street and Consumer Protection Act. Beginning December 31, 2010, the FDIC has implemented a new temporary insurance category to provide unlimited FDIC insurance coverage for funds held in noninterest-bearing transaction accounts at insured banks. This temporary category will remain in effect through December 31, 2012.

 

At March 31, 2012, the Company had $3,895,721 of cash in United States bank deposits, of which $1,721,370 was federally insured and $2,174,351 exceeded federally insured limits.

 

The following table lists the percentage of the Company’s revenue, which was earned from the Company’s two largest InsPro clients.

 

	For the Three Months ended March 31,
	2012		2011
Largest InsPro client	32%		35%
Second largest InsPro client	12%		16%

 

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.

 

Registration rights agreements

 

The Company classifies as liability instruments the fair value of registration rights agreements when such agreements (i) require it to file, and cause to be declared effective under the Securities Act of 1933, as amended, a registration statement with the Commission within contractually fixed time periods, and (ii) provide for the payment of liquidating damages in the event of its failure to comply with such agreements and such failure is probable. Registration rights with these characteristics are accounted for as derivative financial instruments at fair value and contracts that are (a) indexed to and potentially settled in an issuer's own stock and (b) permit gross physical or net share settlement with no net cash settlement alternative are classified as equity instruments.

 

At March 31, 2012, the Company does not believe that it is probable that the Company will incur a penalty in connection with the Company’s registration rights agreements. Accordingly no liability was recorded as of March 31, 2012.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

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

 

 

Recent accounting pronouncements

 

Various accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

 

 

NOTE 2 – DISCONTINUED OPERATIONS

 

The Company has classified its former telesales call center and external (ISG) agent produced agency business (the “Agency Business”), its former Insurint business, and its leased offices located in New York and Florida as discontinued operations.

 

The financial position of discontinued operations was as follows:

 

		March 31, 2012				December 31, 2011
Accounts receivable, less allowance for doubtful accounts $0		$	55,858			$	49,779
Other current assets			15,935				54,223
Net current assets of discontinued operations		$	71,793			$	104,002

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

NOTE 2 – DISCONTINUED OPERATIONS (continued)

 

 

The results of discontinued operations were as follows:

 

		For the Three Months Ended March 31,
		2012				2011
Revenues:
Commission and other revenue from carriers		$	26,548			$	63,189
Transition policy commission pursuant to the Agreement			136,916				194,661
Sub-lease revenue			-				150,142
			163,464				407,992
Operating expenses:
Salaries, employee benefits and related taxes			-				11,133
Rent, utilities, telephone and communications			-				161,704
Professional fees			-				(1,961	)
Other general and administrative			9,622				18,096
			9,622				188,972
Gain from discontinued operations		$	153,842			$	219,020

 

 

NOTE 3 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

		Useful Life (Years)				At March 31, 2012				At December 31, 2011
Computer equipment and software		3				$	1,473,430			$	1,354,525
Office equipment		4.6					204,442				204,442
Office furniture and fixtures		6.7					189,857				189,857
Leasehold improvements		9.8					34,034				34,034
							1,901,763				1,782,858
Less accumulated depreciation							(1,407,317	)			(1,286,166	)
						$	494,446			$	496,692

 

For the three months ended March 31, 2012 and 2011, depreciation expense was $121,151 and $95,034, respectively. For the three months ended March 31, 2012, depreciation expense includes $43,951 of additional, accelerated depreciation expense as a result of InsPro Technologies’ anticipated abandonment of certain furniture and equipment in the second quarter of 2012 when InsPro Technologies anticipates moving to newly furnished office space in Baldwin Towers. See Note 8 – Operating Leases and future commitments.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

NOTE 4 – INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

		Useful Life (Years)				At March 31, 2012				At December 31, 2011
InsPro Technologies intangible assets acquired		4.7				$	2,097,672			$	2,097,672
Software development costs for external marketing		2					174,296				174,296
							2,271,968				2,271,968
Less:  accumulated amortization							(2,098,602	)			(2,011,918	)
						$	173,366			$	260,050

 

For each of the three months ended March 31, 2012 and 2011, amortization expense was $86,684.

 

The intangible asset balance of $173,366 will be amortized during the six month period ended September 30, 2012.

 

 

NOTE 5 – SHAREHOLDERS’ EQUITY

 

 

Stock options

 

The Company recorded compensation expense pertaining to employee stock options in salaries, commission and related taxes of $25,377 and $17,777 for the three months ended March 31, 2012 and 2011, respectively.

 

The value of equity compensation expense not yet expensed pertaining to unvested equity compensation was $178,480 as of March 31, 2012, which will be recognized over a weighted average 3.8 years in the future.

 

The total intrinsic value of stock options outstanding and exercisable as of March 31, 2012 was $0.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

NOTE 5 – SHAREHOLDERS’ EQUITY (continued)

 

 

A summary of the Company's outstanding stock options as of and for the three months ended March 31, 2012 are as follows:

 

		Number Of Shares Underlying Options				Weighted Average Exercise Price				Weighted Average Fair Value
Outstanding at December 31, 2011			6,835,000			$	0.47			$	0.32
For the period ended March 31, 2012
Granted			-				-				-
Exercised			-				-				-
Expired			-				-				-
Outstanding at March 31, 2012			6,835,000			$	0.47			$	0.32
Outstanding and exercisable at March 31, 2012			4,660,000			$	0.64			$	0.42

 

The following information applies to options outstanding at March 31, 2012:

 

 

Options Outstanding																Options Exercisable
Exercise Price				Number of Shares Underlying Options				Weighted Average Remaining Contractual Life				Exercise Price				Number Exercisable				Exercise Price
$	0.060				405,000				2.6			$	0.060				355,000			$	0.060
	0.065				500,000				3.3				0.065				300,000				0.065
	0.100				2,955,000				1.8				0.100				2,155,000				0.100
	0.111				1,500,000				3.4				0.111				375,000				0.111
	1.000				1,000,000				3.7				1.000				1,000,000				1.000
	3.500				75,000				4.0				3.500				75,000				3.500
$	3.600				400,000				4.1			$	3.600				400,000			$	3.600
					6,835,000												4,660,000

 

As of March 31, 2012, there were 30,000,000 shares of our common stock authorized to be issued under the Company’s 2010 Equity Compensation Plan, of which 22,161,980 shares of our common stock remain available for future stock option grants.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

NOTE 5 – SHAREHOLDERS’ EQUITY (continued)

 

 

Common stock warrants

 

On March 30, 2012, warrants to purchase 4,966,887 shares of the Company’s common stock at an exercise price of $1.51 per share expired in accordance with the terms of the warrants.

 

A summary of the status of the Company's outstanding common stock warrants as of and for the three months ended March 31, 2012 are as follows:

 

		Common Stock Warrants				Weighted Average Exercise Price
Outstanding and exercisable at December 31, 2011			91,987,344				0.24
For the period ended March 31, 2012
Granted			-				-
Exercised			-				-
Expired			(4,966,887	)			1.51
Outstanding and exercisable at March 31, 2012			87,020,457				0.17

 

The following information applies to common stock warrants outstanding at March 31, 2012:

 

Warrant Issue Date		Warrant Exercise Price				Warrant Expiration Date		Weighted Average Remaining Life				Anti-dilution Provision Expiration Date		Outstanding Common Stock Warrants
3/31/2008			0.20			3/31/2013			1.0			expired			25,000,000
1/15/2009			0.15			1/14/2014			1.8			9/29/2012			26,666,667
3/26/2010			0.15			3/26/2015			3.0			9/29/2012			7,380,000
9/30/2010			0.15			9/30/2015			3.5			9/29/2012			18,000,010
11/29/2010			0.15			11/29/2015			3.7			9/29/2012			2,000,000
12/22/2010			0.15			12/22/2015			3.7			9/29/2012			7,973,780
															87,020,457

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

NOTE 5 – SHAREHOLDERS’ EQUITY (continued)

 

 

Preferred stock warrants

 

A summary of the status of the Company's outstanding Series A preferred stock warrants as of and for the period ended March 31, 2012 are as follows:

 

		Preferred Stock Warrants				Weighted Average Exercise Price
Outstanding at December 31, 2011			300,000				4.00
For the period ended March 31, 2012
Granted			-				-
Exercised			-				-
Expired			-				-
Outstanding at March 31, 2012			300,000				4.00
Exercisable at March 31, 2012			300,000			$	4.00

 

Outstanding Series A preferred stock warrants at March 31, 2012 have a remaining contractual life of 3.9 years.

 

 

NOTE 6 – CAPITAL LEASE OBLIGATIONS

 

 

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

 

Property and equipment includes the following amounts for leases that have been capitalized as of March 31, 2012 and December 31, 2011:

 

		Useful Life (Years)				March 31, 2012				December 31, 2011
Computer equipment and software		3				$	654,690				654,690
Phone system		3					15,011				15,011
							669,701				669,701
Less accumulated depreciation							(577,593	)			(555,141	)
						$	92,108			$	114,560

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

NOTE 6 – CAPITAL LEASE OBLIGATIONS (continued)

 

 

Future minimum payments required under capital leases at March 31, 2012 are as follows:

 

2012		$	86,579
2013			58,818
2014			50,372
2015			12,815
Total future payments			208,584
Less amount representing interest			14,476
Present value of future minimum payments			194,108
Less current portion			93,631
Long-term portion		$	100,477

 

NOTE 7 – 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 90 days of employment with the Company. Effective January 1, 2007, the Company implemented an elective contribution to the plan of 25% of the employee’s contribution up to 4% of the employee’s compensation (the “Contribution”). The Contributions are subject to a vesting schedule and become fully vested after one year of service, retirement, death or disability, whichever occurs first. The Company made contributions of $14,607 and $11,633 for the three months ended March 31, 2012 and 2011, respectively.

 

 

NOTE 8 – OPERATING LEASES AND FUTURE COMMITMENTS

 

 

On September 14, 2007, InsPro Technologies entered into a lease agreement with BPG Officer VI Baldwin Tower L.P. (“BPG”) for approximately 5,524 square feet of office space at Baldwin Towers in Eddystone, Pennsylvania (the “BPG Lease”). On March 26, 2008, and again on December 2, 2008, the Company and BPG agreed to amend the BPG Lease to increase the leased office space by 1,301 and 6,810 square feet, respectively. The term of the lease commenced on October 1, 2007 was to expire on January 31, 2013. Under the terms of the BPG Lease, rent was waived for the first, second, tenth and twenty-fifth months of the lease term.

 

On March 15, 2012, InsPro Technologies and BPG agreed to amend the BPG Lease to extend its term to January 31, 2017, and after BPG completes certain building improvements InsPro Technologies will move from its current location to another floor of the same building and lease 17,567 square feet of furnished office space from BPG. InsPro Technologies’ monthly rent shall be $24,886.58 per month commencing with InsPro Technologies’ occupancy of the new office space, which is anticipated to occur in the second or third quarter of 2012, through January 31, 2013. InsPro Technologies' monthly rent will increase to $25,619 per month through January 31, 2014, increase to $26,351 per month through January 31, 2015, increase to $27,082 per month through January 31, 2016, and finally increase to $27,814 per month through January 31, 2017.

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

 

 

NOTE 8 – OPERATING LEASES AND FUTURE COMMITMENTS (continued)

 

 

The Company recorded a liability for deferred rent pertaining to the BPG Lease in the amount of $6,725 as of March 31, 2012. The Company also recorded a liability for deferred rent pertaining to its lease with Radnor Properties-SDC, L.P. in the amount of $114,215 as of March 31, 2012.

 

The Company leases certain real and personal property under non-cancelable operating leases. Rent expense was $129,300 and $255,783 for the three months ended March 31, 2012 and 2011, respectively.

 

Future minimum payments required under operating leases and service agreements at March 31, 2012 are as follows:

 

2012		$	504,439
2013			560,032
2014			571,317
2015			581,709
2016			594,197
thereafter			93,335
Total		$	2,905,029

 

NOTE 9 – SUBSEQUENT EVENTS

 

Management has evaluated the effects of events subsequent to March 31, 2012 and has concluded that events requiring adjustment to or disclosure in the financial statements have been made.

 

On April 30, 2012, InsPro Technologies agreed to pay a $1,200,000 licensing fee within 30 days to Micro Focus (US) Inc. (“Micro Focus”) in connection with an Application Provider Hosting Agreement between InsPro Technologies and Micro Focus. As part of the agreement InsPro Technologies expanded its perpetual license rights to a Micro Focus software product used by InsPro Technologies in conjunction with hosting its InsPro Enterprise software.  The expanded perpetual license rights will apply to InsPro Technologies’ hosting activities for its current and future customers.

 

Included in the $1,200,000 fee is annual support of the licensed software from Micro Focus at a cost of $89,250, which the Company anticipates will be expensed straight line over a period of twelve months beginning May 1, 2012. The Company anticipates expensing the remainder of the license fee over a period of thirty-six months beginning May 1, 2012.

 

 

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.

 

 

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 InsPro Technologies, LLC subsidiary (“InsPro Technologies”).

 

InsPro Enterprise is a comprehensive, web-based insurance administration software application. InsPro Enterprise was introduced by Atiam Technologies, L.P. (now our InsPro Technologies, LLC subsidiary) in 2004. InsPro Enterprise clients include health insurance carriers and third party administrators. We market InsPro Enterprise as a licensed software application, and we realize revenue from the sale of the software licenses, application service provider fees, software maintenance fees and professional services.

 

Critical Accounting Policies

 

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

 

Use of Estimates - Management's Discussion and Analysis is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable and long-lived assets such as intangible assets. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates in 2012 and 2011 include the allowance for doubtful accounts, stock-based compensation, the useful lives of property and equipment and intangible assets, accrued expenses pertaining to abandoned facilities, warrant liability and revenue recognition. Actual results may differ from these estimates under different assumptions or conditions.

 

InsPro Technologies 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 InsPro Technologies’ servers located at InsPro Technologies’ office or at a third party’s site.

 

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

 

 

InsPro Technologies revenue is generally recognized under ASC 985-605. For software arrangements involving multiple elements, we allocate revenue to each element based on the relative fair value or the residual method, as applicable using vendor specific objective evidence to determine fair value, which is based on prices charged when the element is sold separately. Software revenue accounted for under ASC 985-605 is recognized when persuasive evidence of an arrangement exists, the software is delivered in accordance with all terms and conditions of the customer contracts, the fee is fixed or determinable and collectibility 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 collectibility 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 Enterprise 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.

 

 

RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2012 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2011

 

Revenues

 

For the three months ended March 31, 2012 (“First Quarter 2012”), we earned revenues of $2,392,927 compared to $2,342,869 for the three months ended March 31, 2011 (“First Quarter 2011”), an increase of $50,058 or 2%. Revenues include the following:

 

		For the Three Months Ended March 31,
		2012				2011
Professional services		$	1,522,665			$	1,350,973
ASP revenue			667,437				454,418
Sales of software licenses			-				335,000
Maintenance revenue			195,675				197,538
Sub-leasing revenue			7,150				4,940
Total		$	2,392,927			$	2,342,869

 

·

In First Quarter 2012 our professional services revenue increased $171,692 or 13% as a result of higher implementation services for a new client in 2012 partially offset by lower post implementation services for existing clients. Implementation services included assisting clients in setting up their insurance products in InsPro Enterprise, 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.

 

·

In First Quarter 2012 our ASP revenue increased $213,019 or 47% as a result of increased fees from the recent implementations of InsPro Enterprise and increased fees from several existing clients. ASP hosting service enables a client to either lease InsPro Enterprise software, paying only for that capacity required to support their business, or for a client to outsource the operation of their licensed InsPro Enterprise installation to the Company. ASP hosting clients access InsPro Enterprise installed on the Company’s owned servers located at the Company’s office or at a third party’s site.

 

·

In First Quarter 2011 we earned $335,000 of license fee revenue, which represents a license fee recognized upon the completion of the implementation of InsPro Enterprise for a client.

 

·

In First Quarter 2012 our maintenance revenue decreased $1,863 or 1% as a result of decreased fees from an existing client partially offset by increased fees from a new client.

 

 

·

We earned sub-leasing revenue from the sub leasing of space in our Radnor office to a third party, which is on a month to month basis. The Company’s sublease revenue varies month to month based on the amount of space the Company’s sub-tenant utilizes.

 

Cost of Revenues

 

Our cost of revenues for First Quarter 2012 was $2,025,949 as compared to $1,658,861 for First Quarter 2011 for an increase of $367,088 or 22% as compared to First Quarter 2011. Cost of revenues consisted of the following:

 

		For the Three Months Ended March 31,
		2012				2011
Salaries, employee benefits and related taxes		$	1,291,903			$	1,057,248
Professional fees			577,300				390,371
Rent, utilities, telephone and communications			84,567				81,305
Other cost of revenues			72,179				129,937
		$	2,025,949			$	1,658,861

 

·

Our salaries, employee benefits and related taxes component of cost of revenues in First Quarter 2012 was $1,291,903 as compared to $1,057,248 for First Quarter 2011 for an increase of $234,655 or 22% as compared to First Quarter 2011. Salaries, employee benefits and related taxes increased primarily a result of increased employee staffing related to the increase in the number of InsPro Technologies’ clients.

 

·

Our professional fees component of cost of revenues in First Quarter 2012 was $577,300 as compared to $390,371 for First Quarter 2011 for an increase of $186,929 or 48% as compared to First Quarter 2011. Professional fees increased as a result of increased utilization of several outside consulting firms, which are assisting us with modifications to InsPro Enterprise’s functionality and new clients’ implementation of InsPro Enterprise.

 

·

Our rent, utilities, telephone and communications component of cost of revenues in First Quarter 2012 was $84,567 as compared to $81,305 for First Quarter 2011. Rent, utilities, telephone and communications increased as a result of scheduled increases in rental costs and increases in telephone and communications costs.

 

·

Our other cost of revenues component of cost of revenues in First Quarter 2012 was $72,179 as compared to $129,937 in First Quarter 2011, a decrease of $57,758. The decrease was the result of cost reduction initiatives pertaining to computer processing. Other cost of revenues consisted of computer processing incurred primarily to provide ASP hosting services, hardware and software, travel and entertainment, and office expenses.

 

Gross Profit

 

As a result of the aforementioned factors, we reported a gross profit of $366,978 in First Quarter 2012 as compared to a $684,008 in First Quarter 2011.

 

 

Selling, General and Administrative Expenses

 

Our selling, general and administrative expenses for First Quarter 2012 was $1,111,495 as compared to $1,185,717 for First Quarter 2011 for a decrease of $74,222 or 6% as compared to First Quarter 2011. Selling, marketing and administrative expenses consisted of the following:

 

		For the Three Months Ended March 31,
		2012				2011
Salaries, employee benefits and related taxes		$	561,578			$	653,122
Advertising and other marketing			32,532				23,477
Depreciation and amortization			207,835				181,718
Rent, utilities, telephone and communications			91,324				97,448
Professional fees			101,758				104,537
Other general and administrative			116,468				125,415
		$	1,111,495			$	1,185,717

 

In First Quarter 2012 we incurred salaries, employee benefits and related taxes of $561,578 as compared to $653,122 for First Quarter 2011, a decrease of $91,544 or 14%. Salaries, commission and related taxes consisted of the following:

 

		For the Three Months Ended March 31,
		2012				2011
Salaries, wages, bonuses and commissions		$	463,052			$	544,181
Share based employee and director compensation			25,377				17,777
Employee benefits			28,224				29,443
Payroll taxes			43,425				50,721
Directors’ compensation			1,500				11,000
Total		$	561,578			$	653,122

 

·

Salaries, wages and bonuses were $463,052 in First Quarter 2012 as compared to $544,181 in First Quarter 2011, a decrease of $81,129 or 15%. The decrease is primarily the result of lower corporate staffing and to a lesser extent lower commissions to InsPro Technologies staff.

 

·

Directors’ compensation is lower primarily as a result of the amendment to the Company’s non employee director compensation reducing director compensation in the fourth quarter of 2011.

 

In First Quarter 2012 we incurred advertising and other marketing expense of $32,532 as compared to $23,477 in First Quarter 2011. The increase is primarily the result of increased advertising in professional publications and search engine optimization services.

 

 

Depreciation and amortization expense consisted of the following:

 

		For the Three Months Ended March 31,
		2012				2011
Amortization of intangibles acquired as a result of the InsPro acquisition		$	86,684			$	86,684
Depreciation expense			121,151				95,034
Total		$	207,835			$	181,718

 

·

We incurred amortization expense of $86,684 in each of the First Quarter 2012 and First Quarter 2011 for the intangible assets acquired from InsPro Technologies (formerly Atiam Technologies, L.P.) on October 1, 2007.

 

·

In First Quarter 2012 we incurred depreciation expense of $121,151 as compared to $95,034 in First Quarter 2011. The increase was primarily due to $43,951 of additional, accelerated depreciation expense in First Quarter 2012 as a result of InsPro Technologies’ anticipated abandonment of certain furniture and equipment in the second quarter of 2012 when InsPro Technologies anticipates moving to newly furnished office space in a different section of Baldwin Towers.

 

In First Quarter 2012 we incurred rent, utilities, telephone and communications expense of $91,324 as compared to $97,448 in First Quarter 2011. The decrease is primarily the result of the elimination of the Company’s former Florida office.

 

In First Quarter 2012 we incurred other expense of $116,468 as compared to $125,415 in First Quarter 2011. The decrease is primarily the result of cost reductions in our corporate areas including lower insurance costs due to the elimination of the Company’s former Florida office.

 

Loss from operations

 

As a result of the aforementioned factors, we reported a loss from operations of $744,517 in First Quarter 2012 as compared to a loss from operations of $501,709 in First Quarter 2011.

 

 

Gain on discontinued operations

 

Results from discontinued operations were as follows:

 

		For the Three Months Ended March 31,
		2012				2011
Revenues:
Commission and other revenue from carriers		$	26,548			$	63,189
Transition policy commission pursuant to the Agreement			136,916				194,661
Sub-lease revenue			-				150,142
			163,464				407,992
Operating expenses:
Salaries, employee benefits and related taxes			-				11,133
Rent, utilities, telephone and communications			-				161,704
Professional fees			-				(1,961	)
Other general and administrative			9,622				18,096
			9,622				188,972
Gain from discontinued operations		$	153,842			$	219,020

 

For First Quarter 2012 we earned revenues from discontinued operations of $163,464 as compared to $407,992 in the First Quarter 2011, a decrease of $244,528 or 60%. Revenues include the following:

 

·

Commission and other revenue from carriers was $26,548 in First Quarter 2012 as compared to $63,189 in First Quarter 2011. The decrease is due to the declines in our telesales call center produced agency business. We continue to receive commissions from carriers other than certain carriers and commissions on policies other than transferred policies, which were transferred to the acquirer.

 

·

On February 20, 2009, the Company entered into and completed the sale of the agency business to eHealth Insurance Services, Inc., an unaffiliated third party, pursuant to the terms of a Client Transition Agreement. Transition policy commission pursuant to the Agreement was $136,916 in First Quarter 2012 as compared to $194,661 in the First Quarter 2011. The decrease is due to the declines in our telesales call center produced agency business.

 

·

In First Quarter 2011 we earned sub-lease revenue of $150,142 relating to the sub-lease of our former Florida. Our lease for our former Florida office expired on February 28, 2011. Sub-lease revenue from our former Florida office also ceased effective February 28, 2011.

 

Total operating expenses of discontinued operations for First Quarter 2012 was $9,622 as compared to $188,972 for First Quarter 2011. The primary reason for the decrease is the expiration of the lease for our former Florida office and the elimination of rent and other associated costs.

 

 

Gain from discontinued operations

 

As a result of the aforementioned factors, we reported a gain from discontinued operations of $153,842 or $0.00 gain from discontinued operations per share in First Quarter 2012 as compared to a gain from discontinued operations of $219,020 or $0.01 gain from discontinued operations per share in First Quarter 2011.

 

Other income (expenses)

 

In First Quarter 2012 we recognized a gain on change in fair value of warrants liabilities of $124,545 as compared to a gain of $309,294 in the First Quarter 2011. The gain in First Quarter 2012 and the gain in the First Quarter 2011 represents the mark to market adjustments for the change in fair value of warrants, which contain provisions that adjust the exercise price of these warrants in the event we issue our common stock or other securities convertible into our common stock at price lower than the exercise price of these warrants.

 

Interest income is attributable to interest-bearing cash deposits. The decrease in interest income is the result of a decline in interest rates and a decline in cash balances.

 

Interest expense is attributable to capital leases and note payable for premium financing on a portion of the company’s insurance coverages. The decrease in interest expense is the result of a decline in capital lease balances.

 

Net loss

 

As a result of these factors discussed above, we reported a net loss of $466,896 or $0.01 net loss per share in First Quarter 2012 as compared to net income of $27,641 or $0.00 net income per share in First Quarter 2011.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

At March 31, 2012, we had a cash balance of $3,895,721 and working capital of $3,034,340.

 

Net cash provided by operations was $350,863 in 2012 as compared to $278,668 cash used in 2011. The improvement in cash flow from operations was primarily the result of increased collections of accounts receivable in 2012 as compared to 2011. Impacting our cash flow from operations was our net loss of $466,896 in 2012 as compared to our net income of $27,641 in 2011 and:

 

·

Decreases in accounts receivable of $28,383 in 2012, which are primarily the result of the collection of unearned license fees in billed in 2012 and increased billings to clients especially for professional services.

 

·

Increases in accounts payable of $71,638 in 2012, which is primarily the result of increased utilization of outside IT consulting firms and an increase in the amounts owed to these vendors.

 

·

Decreases in accrued expenses of $171,617 in 2012, which is primarily the result of the payment of accrued IT consulting amounts incurred in 2011 and paid in 2012.

 

·

Increases in deferred revenue of $778,700, which is primarily the result of the billing of annual maintenance fees to various clients in the first quarter of 2012. These maintenance fees are earned pro-rata over the maintenance contract period.

 

 

·

Decreases in net assets of discontinued operations of $32,209, which are primarily the result of the collection of amounts owed from the buyer in Insurint.

 

In addition to cash used in operating activities we incurred the following non cash gain and expenses in 2012, which were included in our net income (loss), including:

 

·

Recorded depreciation and amortization expense of $207,835 and $181,718 in 2012 and 2011, respectively.

 

·

Recorded stock-based compensation and consulting expense of $25,377 and $17,777 in 2012 and 2011, respectively.

 

·

Recognized a gain on change in fair value of warrants liabilities of $124,545 and $309,294 in 2012 and 2011, respectively.

 

Net cash used by investing activities in 2012 was $118,904 as compared to $29,816 in 2011. The increase is the result of computer hardware acquired in connection with new clients utilizing the Company’s hosting service for InsPro Enterprise.

 

Net cash used by financing activities in 2012 was $38,293 as compared to cash provided in 2011 of $1,091,317.

 

·

InsPro Technologies entered into a note payable to finance the insurance premium for one of the Company’s various corporate insurance coverages during 2011, which was repaid in the first quarter or 2012.

 

·

InsPro Technologies has entered into various capital lease obligations to purchase equipment used for operations.

 

·

During the first quarter of 2011 the letters of credit pertaining to the former leases for our Florida and New York offices, which were collateralized with assets in the form of a money market account and certificate of deposit and classified as restricted cash as of December 31, 2010, were terminated as a result of the expiration of these leases. As a result of the termination of these letters of credit the restrictions on the money market account and certificate of deposit were lifted, and $1,152,573 was reclassified from restricted cash to cash during the first quarter of 2011.

 

On April 30, 2012, InsPro Technologies agreed to pay a $1,200,000 licensing fee within 30 days to Micro Focus (US) Inc. (“Micro Focus”) in connection with an Application Provider Hosting Agreement between InsPro Technologies and Micro Focus. As part of the agreement InsPro Technologies expanded its perpetual license rights to a Micro Focus software product used by InsPro Technologies in conjunction with hosting its InsPro Enterprise software.  The expanded perpetual license rights will apply to InsPro Technologies’ hosting activities for its current and future customers.

 

The Company is currently pursuing financing for all or a portion of the $1,200,000 license fee. Although the Company believes that opportunities exist for us to finance all or a portion of the $1,200,000 license fee, no assurances can be given that the Company will be able to obtain any financing or obtain financing at favorable terms.  In the event that the Company is unsuccessful in obtaining financing for all or a portion of the $1,200,000 fee the Company anticipates that it will have sufficient cash to pay the fee and fund its financial obligations over the next twelve months.

 

 

Off-Balance Sheet Arrangements

 

We do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet or other contractually narrow or limited purposes.

 

 

Item 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

 

We are involved in various investigations, claims and lawsuits arising in the normal conduct of our business, none of which, in our opinion, will harm our business. We cannot assure 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 †

 

                                                   

* Filed herewith.

† Furnished herewith.

 

 

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: May 15, 2012	INSPRO TECHNOLOGIES CORPORATION
	By:	/s/ ANTHONY R. VERDI
		Anthony R. Verdi
		Chief Executive Officer, Chief Financial Officer and Chief Operating Officer
		(Principal Executive and Financial Officer)

 

 

 

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 †

 

                                                    

* Filed herewith.

† Furnished herewith.