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 September 30, 2015

 

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  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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

 

Large Accelerated Filer   ¨			Accelerated Filer   ¨
Non-Accelerated Filer   ¨			Smaller Reporting Company   x

 

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

 

As of November 16, 2015, 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 September 30, 2015 (UNAUDITED) and December 31, 2014	3
		Consolidated Statements of Operations (UNAUDITED) for the three and nine months ended September 30, 2015 and 2014	4
		Consolidated Statements of Cash Flows (UNAUDITED) for the nine months ended September 30, 2015 and 2014	5
		Notes to UNAUDITED Consolidated Financial Statements	6
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 4		Controls and Procedures	44
PART II OTHER INFORMATION
Item 1		Legal Proceedings	44
Item 6		Exhibits	44
		Signatures	45

 

 

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		September 30, 2015				December 31, 2014
		(Unaudited)				(1)
ASSETS
CURRENT ASSETS:
Cash		$	1,968,421			$	3,431,001
Accounts receivable, net			6,532,672				2,244,812
Prepaid expenses			260,450				321,228
Other current assets			1,185				2,796
Assets of discontinued operations			14,107				19,783
Total current assets			8,776,835				6,019,620
Property and equipment, net			862,659				1,104,441
Other assets			50,000				50,000
Total assets		$	9,689,494			$	7,174,061
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable		$	61,851			$	549,329
Accounts payable			6,133,037				4,834,128
Accrued expenses			528,942				373,310
Current portion of capital lease obligations			225,918				182,388
Deferred revenue			2,957,827				2,251,688
Total current liabilities			9,907,575				8,190,843
LONG TERM LIABILITIES:
Warrant liability			-				5,760
Deferred revenue			2,000,000				-
Capital lease obligations			212,186				231,207
Total long term liabilities			2,212,186				236,967
Total liabilities			12,119,761				8,427,810
SHAREHOLDERS' DEFICIT:
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; 11,000,000 shares authorized, 4,972,519 and 3,809,378 shares issued and outstanding (liquidation value $14,917,557 and $11,428,134)			10,834,414				7,709,919
Common stock ($.001 par value; 500,000,000 shares authorized, 41,543,655 shares issued and outstanding)			41,543				41,543
Additional paid-in capital			46,543,135				45,738,974
Accumulated deficit			(62,713,463	)			(57,608,289	)
Total shareholders' deficit			(2,430,267	)			(1,253,749	)
Total liabilities and shareholders' deficit		$	9,689,494			$	7,174,061

 

(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 September 30,								For the Nine Months Ended September 30,
		2015				2014				2015				2014
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenues		$	6,381,855			$	5,973,754			$	15,702,781			$	13,818,009
Cost of revenues			5,324,024				4,880,477				16,339,394				11,447,677
Gross profit (loss)			1,057,831				1,093,277				(636,613	)			2,370,332
Selling, general and administrative expenses:
Salaries, employee benefits and related taxes			851,594				750,226				2,551,107				3,793,371
Advertising and other marketing			22,986				95,872				114,635				239,120
Depreciation			21,967				44,471				86,514				123,325
Rent, utilities, telephone and communications			92,954				91,951				270,890				286,040
Professional fees			190,334				205,147				687,730				742,246
Other general and administrative			266,559				203,412				771,010				596,391
Total selling, general and administrative expenses			1,446,394				1,391,079				4,481,886				5,780,493
Operating loss from continuing operations			(388,563	)			(297,802	)			(5,118,499	)			(3,410,161	)
Other income (expense):
Gain on the change of the fair value of warrant liability			-				40,480				-				50,600
Gain on the sale of equipment			(2,931	)			-				17,738				-
Interest expense			(39,999	)			(12,850	)			(121,195	)			(31,528	)
Total other income (expense)			(42,930	)			27,630				(103,457	)			19,072
Loss from continuing operations			(431,493	)			(270,172	)			(5,221,956	)			(3,391,089	)
Income from discontinued operations			37,046				56,478				116,782				188,495
Net loss		$	(394,447	)		$	(213,694	)		$	(5,105,174	)		$	(3,202,594	)
Net income (loss) per common share - basic and diluted:
Loss from operations		$	(0.04	)		$	(0.01	)		$	(0.12	)		$	(0.08	)
Income from discontinued operations			-				-				-				-
Net loss per common share		$	(0.04	)		$	(0.01	)		$	(0.12	)		$	(0.08	)
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.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Nine Months Ended September 30,
		2015				2014
		(Unaudited)				(Unaudited)
Cash Flows From Operating Activities:
Net loss		$	(5,105,174	)		$	(3,202,594	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			474,535				611,442
Stock-based compensation			433,473				1,752,550
(Gain) on change of fair value of warrant liability			-				(50,600	)
(Gain) on the sale of equipment			(17,738	)			-
Changes in assets and liabilities:
Accounts receivable			(4,287,860	)			(3,209,372	)
Prepaid expenses			60,778				10,020
Other current assets			1,611				2,564
Accounts payable			1,298,909				2,446,417
Accrued interest on secured note from related party			89,425				-
Accrued expenses			155,632				40,873
Due to related parties			-				(5,245	)
Deferred revenue			2,706,139				2,254,170
Assets of discontinued operations			5,676				11,464
Net cash used in operating activities			(4,184,594	)			661,689
Cash Flows From Investing Activities:
Purchase of property and equipment			(129,188	)			(534,300	)
Proceeds from the sale of equipment			79,053				-
Net cash (used in) provided by investing activities			(50,135	)			(534,300	)
Cash Flows From Financing Activities:
Gross proceeds from sale of preferred stock and warrants			899,998				-
Payments on notes payable			(487,478	)			(80,237	)
Gross proceeds from secured note from related party			2,000,000				-
Gross proceeds loan payable to related party			500,000				-
Payments on capital leases			(140,371	)			(26,186	)
Net cash provided by (used in) financing activities			2,772,149				(106,423	)
Net (decrease) increase in cash			(1,462,580	)			20,966
Cash - beginning of the period			3,431,001				2,569,536
Cash - end of the period		$	1,968,421			$	2,590,502
Supplemental Disclosures of Cash Flow Information
Cash payments for interest		$	31,770			$	29,669
Non cash financing activities:
Issuance of preferred stock and warrants valued at the amounts owed on secured notes plus accrued interest from related party and loan from related party		$	2,089,425			$	-

 

See accompanying notes to unaudited consolidated financial statements.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

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

 

Organization

 

InsPro Technologies Corporation (the “Company”, “ITCC”, “we”, “us” or “our”) is a technology company that provides software applications for use by insurance administrators in the insurance industry. Our business focuses primarily on our InsPro Enterprise^TM software application, which was introduced in 2004.

 

The Company offers InsPro Enterprise on both a licensed and an ASP (Application Service Provider) basis. InsPro Enterprise is an insurance administration and marketing system that supports group and individual business lines, and efficiently processes agent, direct market, worksite and web site generated business. InsPro Technologies' clients include insurance carriers and third party administrators. 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, 2014 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.

 

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 2015 and 2014 include the warrant liability, 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.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

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 September 30, 2015 and December 31, 2014, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $247,700 and $125,146, respectively.

 

Fair value of financial instruments

 

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, notes payable and capital leases approximated fair value as of September 30, 2015 and December 31, 2014, 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. See Note 10 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 property and equipment 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.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

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 September 30, 2015, the tax years ended December 31, 2014, 2013, 2012 and 2011 are still subject to audit.

 

Income (loss) per common share

 

Basic earnings per share is computed by dividing income (loss) from continuing operations by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the adjusted net 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 2015 and 2014 are excluded from the calculation of diluted income (loss) per common share because it is anti-dilutive.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

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

 

The Company's common stock equivalents include the following:

 

		September 30, 2015				December 31, 2014
Series A convertible preferred stock issued and outstanding			25,535,000				25,535,000
Series B convertible preferred stock issued and outstanding			99,450,380				76,187,560
Options to purchase common stock issued and outstanding			3,225,000				6,725,000
Warrants to purchase common stock issued and outstanding			31,725,180				45,473,780
Warrants to purchase series A convertible preferred stock, issued and outstanding			7,600,000				6,000,000
Warrants to purchase series B convertible preferred stock, issued and outstanding			23,400,000				23,400,000
			190,935,560				183,321,340

 

Revenue recognition

 

The Company offers InsPro Enterprise^TM 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 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.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

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 Enterprise^TM 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 5 year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated 3^rd 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 material breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation, seeks protection under bankruptcy, or materially breaches the Reseller Agreement during the term of the Reseller Agreement (each a “Refund Event”). The Reseller Fee is fully refundable if a Refund Event occurs before August 18, 2016. The Company shall refund the following amounts to the Reseller if a Refund Event occurs between the following dates; $2,000,000 between August 19, 2016 and August 18, 2017, $1,500,000 between August 19, 2017 and August 18, 2018, and $1,000,000 between August 19, 2018 and August 18, 2019. As of September 30, 2015 the Company has recorded the $2,500,000 Reseller Fee in deferred revenue ($500,000 included in short term liabilities and $2,000,000 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.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

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

 

Cost of revenues

 

Cost of revenues includes direct labor and associated costs for employees and independent contractors performing InsPro Enterprise^TM design, development, implementation and testing together with customer management, training and technical support, as well as a portion of facilities costs and depreciation. For the three and nine months ended September 30, 2015 and 2014, cost of revenues consisted of the following:

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2015				2014				2015				2014
Compensation, employee benefits and related taxes		$	1,962,026			$	1,841,432			$	5,972,150			$	5,490,307
Professional fees			3,066,414				2,579,136				9,014,589				4,699,308
Depreciation			97,660				183,285				388,021				488,117
Rent, utilities, telephone and communications			126,378				105,466				359,334				347,064
Other cost of revenues			71,546				171,158				605,300				422,881
		$	5,324,024			$	4,880,477			$	16,339,394			$	11,447,677

 

Advertising and other marketing

 

Advertising and other marketing costs are expensed as incurred. For the three months ended September 30, 2015 and 2014, advertising and other marketing costs were $22,986 and $95,872, respectively. For the nine months ended September 30, 2015 and 2014, advertising and other marketing costs were $114,635 and $239,120, respectively.

 

Concentrations of credit risk

 

The Company maintains its cash and restricted cash in bank deposit accounts, which exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation (“FDIC”). At September 30, 2015, the Company had $1,968,421 of cash in United States bank deposits, of which $500,115 was federally insured and $1,468,306 was not federally insured.

 

In 2010 the FDIC insurance coverage limit was increased to $250,000 per depositor, per institution as a result of the Dodd-Frank Wall Street and Consumer Protection Act.

 

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

 

		September 30, 2015				December 31, 2014
Client #1			52	%			16	%
Client #2			18	%			14	%
Client #3			-				13	%
Client #4			-				12	%

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

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

 

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

 

		For the Nine Months Ended September 30,
		2015				2014
Client #1			24	%			21	%
Client #2			12	%			14	%
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 September 30, 2015, the Company does not believe that it will incur a penalty in connection with the Company’s registration rights agreements. Accordingly, no liability was recorded as of September 30, 2015. See Note 6 - Stockholders Deficit – Registration and Participation Rights.

 

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.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 2 – DISCONTINUED OPERATIONS

 

The Company has classified its former telesales call center and external agent produced agency business as discontinued operations. During the first quarter of 2009, the Company ceased the direct marketing and sale of health and life insurance and related products to individuals and families in its telesales call center. The Company also determined to discontinue selling health and life insurance and related products to individuals and families through its non employee ISG 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:

 

		September 30, 2015				December 31, 2014
Accounts receivable		$	14,107			$	19,783
Net current assets of discontinued operations		$	14,107			$	19,783

 

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 September 30,								For the Nine Months Ended September 30,
		2015				2014				2015				2014
Revenues:
Commission and other revenue from carriers		$	3,633			$	5,861			$	12,320			$	23,099
Transition policy commission pursuant to the Agreement			39,680				56,884				126,208				186,451
			43,313				62,745				138,528				209,550
Operating expenses:
Other general and administrative			6,267				6,267				21,745				21,055
			6,267				6,267				21,745				21,055
Income from discontinued operations		$	37,046			$	56,478			$	116,782			$	188,495

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 3 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

		Useful Life (Years)		September 30, 2015				December 31, 2014
Computer equipment and software		3		$	4,142,254			$	3,927,491
Office equipment		4.6			158,732				148,381
Office furniture and fixtures		6.7			189,857				189,857
Leasehold improvements		5.4			94,620				94,620
					4,585,463				4,360,349
Less accumulated depreciation					(3,722,804	)			(3,255,908	)
				$	862,659			$	1,104,441

 

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

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2015				2014				2015				2014
Depreciation included in cost of revenues		$	97,660			$	183,285			$	388,021			$	488,117
Depreciation included in selling, general and administrative			21,967				44,471				86,514				123,325
Total depreciation		$	119,627			$	227,756			$	474,535			$	611,442

 

NOTE 4 – NOTES PAYABLE

 

Notes payable consisted of the following:

 

		September 30, 2015				At December 31, 2014
Notes payable for insurance premium financing		$	61,851			$	24,329
Loan from Silicon Valley Bank			-				525,000
		$	61,851			$	549,329

 

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

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 5 – TRANSACTIONS AND LOANS FROM RELATED PARTIES

 

On September 18, 2015, the Company completed a private placement (the “Private Placement”) with certain accredited investors (the “Investors”), including The Co-Investment Fund II, L.P. (“Co-Investment”), which hold more than 5% of our common stock and Donald Caldwell is the CEO and chairman of the board of directors of the Company and managing partner of Co-Investment; Edmond Walters, who is a director of the Company, and Azeez Enterprises, LP, which is affiliated with Michael Azeez, who is a director of the Company, for an aggregate of 1,163,141 shares of our Series B Convertible Preferred Stock and warrants to purchase 11,631,410 shares of our common stock (the “2015 Warrants”). The Company sold to the investors 1,163,141 units (“Units”) at a per Unit price of $3.00, for an aggregate total investment of $3,489,423, and each unit consisted of one share of Series B Convertible Preferred Stock and a warrant to purchase 10 shares of our common stock at an initial exercise price of $0.15 per share (“Warrant Shares”), subject to adjustment pursuant to the terms of a securities purchase agreement (the “Purchase Agreement”). The Company intends to use the net proceeds of the Private Placement for working capital purposes. See Note 6 - Shareholders’ Deficit – Series B Preferred Stock and Common Stock Warrants. In the Private Placement the Company issued; 696,475 shares of Series A Preferred Stock and 6,964,750 Warrant shares to Co-Investment, 166,666 shares of Series A Preferred Stock and 1,666,660 Warrant shares to Edmond Walters, 150,000 shares of Series A Preferred Stock and 1,500,000 Warrant shares to Azeez Enterprises, and 150,000 shares of Series A Preferred Stock and 1,500,000 Warrant shares to an unrelated third party.

 

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

 

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

 

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

 

On January 30, 2015, the Company and InsPro Technologies issued a Secured Convertible Promissory Note (“Note”) to Co-Investment, pursuant to a Secured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”). In connection with the Note Purchase Agreement, the Company, InsPro LLC (collectively the “Borrowers”) and Co-Investment entered into a Security Agreement (the “Security Agreement”, and together with the Note and the Note Purchase Agreement, the “Financing Agreements”). Pursuant to the terms and subject to the conditions set forth in the Financing Agreements, Co-Investment provided a loan in the amount of $1,000,000 (“Loan”) to the Company and InsPro Technologies, which is secured by all assets of the Company and InsPro Technologies other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (“Collateral”). Pursuant to the Note (“Note”), interest in the amount of 8% per annum, calculated on a 365 or 366 day year, as the case may be, and the principal amount of $1,000,000 and accrued interest will be paid on or before June 30, 2016. Co-Investment has the right to convert principal and accrued interest into the equity securities of the Company in the event that the Company issues and sells equity securities to investors on or before the repayment in full of the Note in an equity financing resulting in gross proceeds to the Company of at least $1,000,000.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

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

 

Pursuant to the Security Agreement, the Borrowers shall not, without Co-Investment’s prior consent, sell, lease or otherwise dispose of any equipment or fixtures constituting Collateral. In addition, the Borrowers will furnish Co-Investment with such information and documents regarding the Collateral and their financial condition, business, assets and liabilities as is reasonably requested by Co-Investment.

 

In connection with the Financing Agreements, Co-Investment entered into a Subordination Agreement (“Subordination Agreement”) with SVB, the terms of such agreement were approved by the Company, InsPro LLC and Atiam Technologies L.P. Pursuant to the Subordination Agreement, Co-Investment agreed, among other things, that all obligations under the Loan Agreement and any other obligations to SVB would be senior to the outstanding indebtedness under the Financing Agreements.

 

On March 27, 2015, the Borrowers issued a second Secured Convertible Promissory Note (the “Second Note”) in the amount of $1,000,000 to Co-Investment pursuant to a second Secured Convertible Promissory Note Purchase Agreement (the “Second Note Purchase Agreement”). The terms of the Second Note are essentially identical to the terms of the Note and the terms of the Second Note Purchase Agreement are essentially identical to the terms of the Note Purchase Agreement.

 

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

 

Loan Payable to Related Party

 

On March 17, 2015, the Company received a loan from Edmond Walters, a current director of the Company, in the amount of $500,000 (the “Walters Loan”). The Walters Loan was a pre-payment by Mr. Walters in connection with any future issuance of equity securities of the Company, and is convertible into equity securities of the Company in connection with any such future issuance of equity securities as agreed to by the Company and Mr. Walters. The Loan from Mr. Walters is refundable to Mr. Walters on demand, without interest, if the Company does not consummate an equity financing within a time period to be determined by the Company and Mr. Walters.

 

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

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 6 – STOCKHOLDERS’ DEFICIT

 

Common Stock

 

As of September 30, 2015 and December 31, 2014, the Company was authorized to issue 500,000,000 and 400,000,000 shares of common stock with a par value of $0.001 per share (“Common Stock”), respectively. As of September 30, 2015 and December 31, 2014, 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:

 

		September 31, 2015				December 31, 2014
Exercise of options issued and outstanding to purchase common stock			3,225,000				6,725,000
Issuance of common shares available under the 2010 Equity Compensation Plan			25,771,980				22,271,980
Exercise of warrants issued and outstanding to purchase common stock			31,725,180				45,473,780
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				6,000,000
Conversion of series B convertible preferred stock issued and outstanding into common stock			99,450,380				76,187,560
Exercise of warrants to purchase series B convertible preferred stock issued and outstanding and converted into common stock			23,400,000				23,400,000
Total common stock reserved for issuance			216,707,540				205,593,320

 

The above table includes Common Stock reserved for non exercisable stock options and Common Stock reserved for the issuance of stock options in the future under the Company’s 2010 Equity Compensation Plan.

 

Series A Convertible Preferred Stock

 

As of September 30, 2015 and December 31, 2014, the Company was authorized to issue 3,437,500 shares of Series A Convertible Preferred Stock with a par value of $0.001 per share (“Series A Preferred Stock”). As of September 30, 2015 and December 31, 2014, the Company had 1,276,750 shares of its Series A Preferred Stock issued and outstanding. As of September 30, 2015 and December 31, 2014, the Company has reserved 380,000 and 300,000 shares of Series A Preferred Stock, respectively, for the exercise of warrants issued and outstanding to purchase its Series A Preferred Stock.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

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, subject to certain customary adjustments, or (B) the amount such share of Series A Preferred Stock would receive if it participated pari passu with the holders of Common Stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series A Preferred stock times $10.00. Each share of Series A Preferred Stock becomes convertible into 20 shares of Common Stock, subject to adjustment and at the option of the holder of the Series A Preferred Stock. For so long as any shares of Series A Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series A Preferred Stock is required to approve (Y) any amendment to the Company’s certificate of incorporation or bylaws that would adversely alter the voting powers, preferences or special rights of the Series A Preferred Stock or (Z) any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series A Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series A Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series A Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series A Preferred Stock with an amount per share equal to two and a half (2.5) times the Series A Preferred Stock original issue price or $12,767,500 in aggregate for all issued and outstanding Series A Preferred Stock.

 

Series B Convertible Preferred Stock

 

As of September 30, 2015 and December 31, 2014, the Company was authorized to issue 11,000,000 and 5,000,000 shares of Series B Convertible Preferred Stock with a par value of $0.001 per share (“Series B Preferred Stock”), respectively. As of September 30, 2015 and December 31, 2014, the Company had 4,972,519 and 3,809,378 of its Series B Preferred Stock issued and outstanding, respectively. As of September 30, 2015 and December 31, 2014, the Company has reserved 1,170,000 shares of Series B Preferred Stock for the exercise of warrants issued and outstanding to purchase its Series B Preferred Stock.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

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 September 30, 2015 and December 31, 2014, 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 $14,917,557 and $11,428,134, respectively, subject to certain customary adjustments, or (B) the amount such share of Series B Preferred Stock would receive if it participated pari passu with the holders of Common 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. Each share of Series B Preferred Stock becomes convertible into 20 shares of Common Stock, subject to adjustment and at the option of the holder of the Series B Preferred Stock. For so long as any shares of Series B Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series B Preferred Stock is required to approve (Y) any amendment to the Company’s certificate of incorporation or bylaws that would adversely alter the voting powers, preferences or special rights of the Series B Preferred Stock or (Z) any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series B Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series B Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series B Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series B Preferred Stock with an amount per share equal the Series B Preferred Stock original issue price or $14,917,557 in aggregate for all issued and outstanding Series B Preferred Stock.

 

On September 18, 2015, pursuant to the Purchase Agreement, the Company agreed to sell to the investors 1,163,141 Units in the Private Placement at a per Unit purchase price equal to $3.00. Each Unit sold in the Private Placement consisted of one share of Series B Preferred Stock and a warrant to purchase ten shares of Common Stock at an initial exercise price of $0.15 per share, subject to adjustment. See Note 5 – Transactions and Loans from Related Parties. In addition, pursuant to the Purchase Agreement, the Company may sell up to an additional 1,000,000 Units to Independence Blue Cross within 90 days following the Closing on substantially the same terms and conditions described above and as set forth in the Purchase Agreement.

 

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

 

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

 

Stock Options

 

During the nine months ended September 30, 2015, 3,700,000 options, which were previously granted to current and former employees of the Company, expired in accordance with the terms of such stock options.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

On March 27, 2015, the Company granted to an executive of the Company an option to purchase a total of 200,000 shares of the Company’s Common Stock, which vests as follows: 66,666 shares of Common Stock on March 27, 2016 and 66,667 shares of Common Stock on March 27 of each year from 2017 through 2018. This option has a five year term and an exercise price of $0.10 per share, which exceeded the $0.067 closing price of one share of the Company’s Common Stock as quoted on the OTCBB on March 27, 2015. The fair value of the option granted was estimated on the date of the grant to be $14,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 792%, risk-free interest rate: 0.12%, expected life in years: 5 based on the contract life of the option grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to this option in salaries, commission and related taxes of $2,398 in the nine months ended September 30, 2015.

 

As of September 30, 2015, there were 30,000,000 shares of our Common Stock authorized to be issued under the Company’s 2010 Equity Compensation Plan, of which 25,771,980 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 salaries, commission and related taxes of $433,473 for the nine months ended September 30, 2015, which included $116,600 of expense pertaining to stock options, $126,382 of expense pertaining to warrants to purchase Series A Preferred Stock and $190,491 of expense pertaining to an amended and restated warrant to purchase Series A Preferred Stock. See Note 6 – Stockholders Deficit – Series A Preferred Stock warrants. The Company recorded compensation expense pertaining to employee stock options and warrants in salaries, commission and related taxes of $1,752,550 for the nine months ended September 30, 2014, which included $58,150 of expense pertaining to stock options and $1,694,400 of expense pertaining to warrants to purchase Series B Preferred Stock.

 

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 $157,521 as of September 30, 2015, which will be recognized over a weighted average 3.0 years in the future.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

A summary of the Company's outstanding stock options as of and for the nine months ended September 30, 2015 are as follows:

 

		Number				Weighted								Weighted
		Of Shares				Average				Weighted				Average				Aggregate
		Underlying				Exercise				Average				Remaining				Intrinsic
		Options				Price				Fair Value				Contractual Life				Value (1)
														(in years)
Outstanding at December 31, 2014			6,725,000			$	0.46			$	0.30				1.66			$	-
For the period ended September 30, 2015
Granted			200,000				0.10				0.07
Exercised			-				-				-
Expired			(3,700,000	)			0.10				0.10
Outstanding at September 30, 2015			3,225,000			$	0.84			$	0.51				3.06			$	-
Outstanding and exercisable at September 30, 2015			1,525,000			$	1.63			$	1.08				1.52			$	-

 

(1) The aggregate intrinsic value is based on the $0.035 closing price as of September 30, 2015 for the Company’s Common Stock.

 

The following information applies to options outstanding at September 30, 2015:

 

Options Outstanding																Options Exercisable
Exercise Price				Number of Shares Underlying Options				Weighted Average Remaining Contractual Life				Exercise Price				Number Exercisable				Exercise Price
	0.100				2,000,000				4.4				0.100				300,000				0.100
	1.000				750,000				0.6				1.000				750,000				1.000
	3.500				75,000				1.0				3.500				75,000				3.500
$	3.600				400,000				1.1			$	3.600				400,000			$	3.600
					3,225,000												1,525,000

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

Common Stock Warrants

 

The 2015 Warrants provide that the holders thereof shall have the right at any time prior to the earlier of (i) ten business days’ after the Company has properly provided written notice to all such holders of a call event (as defined below) and (ii) November 20, 2017, to acquire up to a total of 11,631,180 shares of Common Stock of the Company upon the payment of $0.15 per Share (the “Exercise Price”). The Company also has the right, at any point after which the volume weighted average trading price per share of the Series B Preferred Stock for a minimum of 20 consecutive trading days is equal to at least eight times the Exercise Price per share, provided that certain other conditions have been satisfied (a “Call Event”), to call the outstanding 2015 Warrants, in which case such 2015 Warrants will expire if not exercised within ten business days thereafter. The Company determined the 2015 Warrants qualify for a scope exception under ASC 815 as they were determined to be indexed to the Company’s stock.

 

A summary of the status of the Company's outstanding stock warrants as of and for the nine months ended September 30, 2015 are as follows:

 

						Weighted
		Common				Average
		Stock				Exercise
		Warrants				Price
Outstanding and exercisable at December 31, 2014			45,473,780			$	0.15
For the period ended September 30, 2015
Granted			11,631,410				-
Exercised			-				-
Expired			(25,380,010	)			0.15
Outstanding and exercisable at September 30, 2015			31,725,180			$	0.10

 

Outstanding warrants at September 30, 2015 have an average weighted average remaining contractual life of 1.5 years.

 

The following information applies to warrants outstanding at September 30, 2015:

 

Warrant Issue Date		Warrant Exercise Price				Warrant Expiration Date		Weighted Average Remaining Life				Anti-dilution Provision Expiration Date		Outstanding Common Stock Warrants
11/29/2010		$	0.15			11/29/2015			0.2			expired			2,000,000
12/22/2010			0.15			12/22/2015			0.2			expired			7,973,780
11/20/2012			0.15			11/20/2017			2.1			expired			4,999,990
3/14/2013			0.15			3/14/2018			2.5			expired			120,000
9/12/2013			0.15			11/20/2017			2.1			expired			5,000,000
9/18/2015		$	0.15			11/20/2017			2.1			n/a			11,631,410
															31,725,180

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

Series A Preferred Stock warrants

 

On March 27, 2015, the Company granted to two executives of the Company warrants to purchase a total of 160,000 shares of the Company’s Series A Preferred Stock, which in total vests as follows: 40,000 shares of Series A Preferred Stock on March 27 of each year from 2016 through 2019. These warrants each have a five year term and an exercise price of $4.00 per share. The fair value of these warrants granted were estimated on the date of the grant to be $224,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 768%, risk-free interest rate: 0.12%, expected life in years: 5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to these warrants in salaries, commission and related taxes of $126,382 in the nine months ended September 30, 2015.

 

During the nine months ended September 30, 2015, warrants to purchase a total of 80,000 shares of the Company’s Series A Preferred Stock, which were granted to a former executive of the Company, expired in accordance with the terms of such warrants.

 

On March 27, 2015, the Company amended and restated a warrant to purchase a total of 150,000 shares of the Company’s Series A Preferred Stock originally granted to Mr. Robert J. Oakes on August 18, 2010. The original warrant had an expiration date of August 18, 2015, whereas the amended and restated warrant has an expiration date of September 14, 2016. The warrant is fully exercisable and has an exercise price of $4.00 per share. The fair value of the amendment to the warrant was estimated on the date of the amendment to be $190,491 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 375%, risk-free interest rate: 0.12%, expected life in years: 1.5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to this warrant in salaries, commission and related taxes of $190,491 in the nine months ended September 30, 2015.

 

Outstanding preferred stock warrants to purchase the Company’s Series A Preferred Stock at September 30, 2015 have a remaining contractual life of 1.3 years. A summary of the status of the Company's outstanding Series A Preferred Stock warrants as of and for the nine months ended September 30, 2015 are as follows:

 

						Weighted
		Preferred				Average
		Stock				Exercise
		Warrants				Price
Outstanding and exercisable at December 31, 2014			300,000			$	4.00
For the period ended September 30, 2015
Granted			160,000				4.00
Exercised			-				-
Expired			(80,000	)			-
Outstanding and exercisable at September 30, 2015			380,000			$	4.00

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

 

Series B Preferred Stock Warrants

 

Outstanding preferred stock warrants to purchase the Company’s Series A Preferred Stock at September 30, 2015 have a remaining contractual life of 3.6 years. A summary of the status of the Company's outstanding Series B Preferred Stock warrants as of and for the nine months ended September 30, 2015 are as follows:

 

						Weighted
		Preferred				Average
		Stock				Exercise
		Warrants				Price
Outstanding and exercisable at December 31, 2014			1,170,000			$	3.00
For the period ended September 30, 2015
Granted			-				-
Exercised			-				-
Expired			-				-
Outstanding and exercisable at September 30, 2015			1,170,000			$	3.00

 

Registration and Participation Rights

 

In connection with the Purchase Agreement, which is described in Note 5 – Transactions and Loans from Related Parties, the Company and the Investors also entered into a registration rights agreement (the “Registration Rights Agreement”). Under the terms of the Registration Rights Agreement, the Company agreed to prepare and file with the SEC, within 30 days following the receipt of a demand notice of a holder of Registrable Securities, a registration statement on Form S-1 (the “Registration Statement”) covering the resale of the shares and the Warrant Shares (collectively, the “Registrable Securities”). Subject to limited exceptions, the Company also agreed to use its reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as soon as practicable but, in any event, no later than 60 days following the date of the filing of the Registration Statement (or 120 days following the date of the filing of the Registration Statement in the event the Registration Statement is subject to review by the SEC), and agreed to use its reasonable best efforts to keep the Registration Statement effective under the Securities Act until the date that all of the Registrable Securities covered by the Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In addition, if the Company proposes to register any of its securities under the Securities Act in connection with the offering of such securities for cash, the Company shall, at such time, promptly give each holder of Registrable Securities notice of such intent, and such holders shall have the option to register their Registrable Securities on such additional registration statement. The Registration Rights Agreement also provides for payment of partial damages to the Investor under certain circumstances relating to failure to file or obtain or maintain effectiveness of the Registration Statement, subject to adjustment.

 

As of September 30, 2015, the Company has not received a demand notice in connection with any of the Company’s various registration rights agreements.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 7 – CAPITAL LEASE OBLIGATIONS

 

The Company’s subsidiary InsPro LLC has entered into several capital lease obligations to purchase equipment used for operations. InsPro LLC has the option to purchase the equipment at the end of 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 as of September 30, 2015 and December 31, 2014:

 

				September 30, 2015				December 31, 2014
		Useful Life (Years)
Computer equipment and software		3		$	1,344,091			$	1,179,211
Phone System		3			15,011				15,011
					1,359,102				1,194,222
Less accumulated depreciation					(934,002	)			(803,353	)
				$	425,100			$	390,869

 

Future minimum payments required under capital leases at September 30, 2015 are as follows:

 

2015		$	58,596
2016			234,383
2017			113,649
2018			41,233
Total future payments			447,861
Less amount representing interest			9,757
Present value of future minimum payments			438,104
Less current portion			225,918
Long-term portion		$	212,186

 

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 $61,925 and $59,068 for the nine months ended September 30, 2015 and 2014, respectively.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 9 – OPERATING LEASES

 

On July 7, 2006, the Company entered into a lease agreement with Radnor Properties-SDC, L.P. (the “Landlord”) for the lease of 7,414 square feet of office space located in Radnor Financial Center, Building B, 150 Radnor-Chester Road, Radnor, Pennsylvania. The term of the lease commenced on November 1, 2006, which was the date the Company, with the Landlord’s prior consent, assumed possession of the premises and the date the Landlord tendered possession of the premises to the Company following the substantial completion of the improvements required to be made by the Landlord under the lease agreement, and will expire on the last day of the 125^th month following the commencement of the lease term. The annual rent increases every 12 months, starting at approximately $161,592 plus a proportionate share of Landlord’s building expenses after the second month and ending at approximately $258,378 plus a proportionate share of 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 Company recorded a liability for deferred rent in accrued liabilities in the amount of $43,532 as of September 30, 2015.

 

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.

 

The Company leases certain real and personal property under non-cancelable operating leases. Rent expense was $488,977 and $427,606 for the nine months ended September 30, 2015 and 2014, respectively.

 

NOTE 10 – FAIR VALUE MEASUREMENTS

 

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

 

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

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 10 – FAIR VALUE MEASUREMENTS (continued)

 

The following tables provide a summary of the fair values of the Company’s assets and liabilities.

 

		As of September 30, 2015
		Fair Value Measurements Using												Liabilities at
		Level 1				Level 2				Level 3				Fair Value
LIABILITIES:
Warrant liability		$	-			$	-			$	-			$	-
Total liabilities		$	-			$	-			$	-			$	-
		As of December 31, 2014
		Fair Value Measurements Using												Liabilities at
		Level 1				Level 2				Level 3				Fair Value
LIABILITIES:
Warrant liability		$	-			$	-			$	5,760			$	5,760
Total liabilities		$	-			$	-			$	5,760			$	5,760

 

Warrant liability

 

The Company issued warrants, which contain certain anti-dilution provisions that reduce the exercise price of the warrants in certain circumstances.  See Note 5 - Equity - Common Stock Warrants. The Company has classified the warrant liability as non-current based an evaluation of the contractual obligations of the warrants and management’s expectation as to the settlement date of the warrant liability. The Company measured its warrant liability using Level 3 inputs as defined by ASC 820.

 

Upon the Company’s adoption of the Derivative and Hedging Topic of the FASB Accounting Standards Codification (“ASC 815”) on January 1, 2009, the Company determined that the warrants with provisions that reduce the exercise price of the warrants did not qualify for a scope exception under ASC 815 as they were determined to not be indexed to the Company’s stock as prescribed by ASC 815.

 

The Company determined the fair value of the warrant liability at September 30, 2015 was $0. As of September 30, 2015, there were no warrants with provisions that reduce the exercise price of the warrants. Accordingly all warrants qualify for a scope exception under ASC 815.

 

The following table presents a reconciliation of the warrant liability measured at fair value on a recurring basis using significant unobservable input (Level 3) for the three months ended September 30, 2015:

 

Warrant liability balance as of December 31, 2014		$	5,760
Fair value of warrants whose anti-dilution provisions expired during the period			(5,760	)
Warrant liability balance as of September 30, 2015		$	-

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 11 – SUBSEQUENT EVENTS

 

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

 

Pursuant to the IBC Purchase Agreement, the Company agreed to sell to IBC 333,333 Units in the IBC Private Placement at a per Unit purchase price equal to $3.00. Each Unit sold in the IBC Private Placement consisted of one share of Series B Preferred Stock and an IBC Warrant to purchase ten shares of Common Stock at an initial exercise price of $0.15 per share, subject to adjustment.

 

The closing of the IBC Private Placement was subject to customary closing conditions. The gross proceeds from the closing of the IBC Private Placement were $999,999 and the Company intends to use the net proceeds of the Private Placement for working capital purposes.

 

The IBC Warrant provides that the holders thereof shall have the right at any time prior to the earlier of (i) ten business days’ after the Company has properly provided written notice to all such holders of a Call Event and (ii) November 20, 2017, to acquire up to a total of 3,333,330 shares of Common Stock of the Company (each an “IBC Warrant Share”) upon the payment of $0.15 per Warrant Share (the “Exercise Price”). The Company also has the right upon a Call Event to call the outstanding IBC Warrant, in which case such IBC Warrant will expire if not exercised within ten business days thereafter.

 

In connection with the signing of the IBC Purchase Agreement, the Company and IBC also entered into a registration rights agreement (the “IBC Registration Rights Agreement”). Under the terms of the IBC Registration Rights Agreement, the Company agreed to prepare and file with the SEC, within 30 days following the receipt of a demand notice of a holder of Registrable Securities, a registration statement, a Registration Statement covering the resale of the shares and the IBC Warrant Shares (collectively, the “Registrable Securities”). Subject to limited exceptions, the Company also agreed to use its reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as soon as practicable but, in any event, no later than 60 days following the date of the filing of the Registration Statement (or 120 days following the date of the filing of the Registration Statement in the event the Registration Statement is subject to review by the SEC), and agreed to use its reasonable best efforts to keep the Registration Statement effective under the Securities Act until the date that all of the Registrable Securities covered by the Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In addition, if the Company proposes to register any of its securities under the Securities Act in connection with the offering of such securities for cash, the Company shall, at such time, promptly give each holder of Registrable Securities notice of such intent, and such holders shall have the option to register their Registrable Securities on such additional registration statement. The Registration Rights Agreement also provides for payment of partial damages to the Investor under certain circumstances relating to failure to file or obtain or maintain effectiveness of the Registration Statement, subject to adjustment.

 

 

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015

 

NOTE 11 – SUBSEQUENT EVENTS (continued)

 

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

 

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

 

 

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

 

InsPro Enterprise^TM 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 2015 and 2014 include the warrant liability, 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 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.

 

 

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 Enterprise^TM 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 SEPTEMBER 30, 2015 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2014

 

Revenues

 

For the three months ended September 30, 2015 (“Third Quarter 2015”), we earned revenues of $6,381,855 compared to $5,973,754 for the three months ended September 30, 2014 (“Third Quarter 2014”), an increase of $408,101 or 7%. Revenues include the following:

 

		For the Three Months Ended September 30,
		2015				2014
Professional services		$	4,191,989			$	2,948,159
ASP revenue			1,721,272				1,285,927
Sales of software licenses			-				1,300,000
Maintenance revenue			450,594				432,475
Sub-leasing and other revenue			18,000				7,193
Total		$	6,381,855			$	5,973,754

 

·

In Third Quarter 2015 our professional services revenue increased $1,243,830, or 42%, as a result of higher implementation services and recognition of a $625,000 payment from a client in second quarter 2015 for professional services earned in Third Quarter 2015. 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.

 

·

In Third Quarter 2015 our ASP revenue increased $435,345, or 34%, as a result of increased fees from ongoing and recent implementations of InsPro Enterprise from several existing clients. ASP hosting service enables a client to either lease InsPro Enterprise software, paying only for that capacity required to support their business, or for a client to outsource the operation of their licensed InsPro Enterprise installation to the Company. ASP hosting clients access InsPro Enterprise installed on the Company’s servers located at a third party’s site.

 

·

In Third Quarter 2014 we earned $1,300,000 of license fee revenue, which was a license fee recognized upon the completion of the implementation of additional insurance products for an existing client.

 

·

In Third Quarter 2015 our maintenance revenue increased $18,119 or 4% as a result of increased fees from several clients’ recent implementations of InsPro Enterprise.

 

·

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

 

 

Cost of Revenues

 

Our cost of revenues for Third Quarter 2015 was $5,324,024 as compared to $4,880,477 for Third Quarter 2014 for an increase of $443,547, or 9%, as compared to Third Quarter 2014. Cost of revenues consisted of the following:

 

		For the Three Months Ended September 30,
		2015				2014
Compensation, employee benefits and related taxes		$	1,962,026			$	1,841,432
Professional fees			3,066,414				2,579,136
Depreciation			97,660				183,285
Rent, utilities, telephone and communications			126,378				105,466
Other cost of revenues			71,546				171,158
		$	5,324,024			$	4,880,477

 

·

In Third Quarter 2015 our salaries, employee benefits and related taxes component of cost of revenues increased $120,694, or 7%, as compared to Third Quarter 2014. Salaries, employee benefits and related taxes increased primarily as a result of increased employee staffing.

 

·

In Third Quarter 2015 our professional fees component of cost of revenues increased $487,279, or 19%, as compared to Third Quarter 2014. Professional fees increased as a result of increased utilization of several outside consulting firms, which were assisting us with modifications to InsPro Enterprise’s functionality and new clients’ implementations of InsPro EnterpriseTM.

 

·

In Third Quarter 2015 our depreciation expense component of cost of revenues decreased $85,625, or 47%, as compared to Third Quarter 2014. Depreciation expense decreased as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for such assets.

 

·

In Third Quarter 2015 our rent, utilities, telephone and communications component of cost of revenues increased $20,912, or 20%, as compared to Third Quarter 2014 primarily due to higher rent due to increased space rented in increased rental payments pertaining to our Eddystone office.

 

·

In Third Quarter 2015 our other cost of revenues component of cost of revenues decreased $99,612, or 58%, as compared to Third Quarter 2014. The decrease was primarily the result of decreased travel and lodging costs associated with implementations of InsPro Enterprise and decreased computer processing costs. Other cost of revenues consisted of the cost of 3rd party licensed software 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 deficit of $1,057,831 in Third Quarter 2015, as compared to a gross profit of $1,093,277 in Third Quarter 2014.

 

 

Selling, General and Administrative Expenses

 

Our selling, general and administrative expenses for Third Quarter 2015 was $1,446,395 as compared to $1,391,079 for Third Quarter 2014 for an increase of $55,316, or 4%, as compared to Third Quarter 2014. Selling, marketing and administrative expenses consisted of the following:

 

		For the Three Months Ended September 30,
		2015				2014
Compensation, employee benefits and related taxes		$	851,594			$	750,226
Advertising and other marketing			22,986				95,872
Depreciation			21,967				44,471
Rent, utilities, telephone and communications			92,955				91,951
Professional fees			190,333				205,147
Other general and administrative			266,560				203,412
		$	1,446,395			$	1,391,079

 

·

In Third Quarter 2015 our salaries, employee benefits and related taxes increased $101,368, or 14%, as compared to Third Quarter 2014. The increase is primarily the result of an increase in equity compensation expense to current and former executives.

 

·

In Third Quarter 2015 our advertising and other marketing expenses decreased $72,886, or 76%, as compared to Third Quarter 2014 primarily as a result of reduced marketing activities.

 

·

In Third Quarter 2015 our depreciation expense decreased $22,504, or 51%, as compared to Third Quarter 2014. Depreciation expense decreased as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for such assets.

 

·

In Third Quarter 2015 our other general and administrative expenses increased $63,148, or 31%, as compared to Third Quarter 2014. The increase is primarily the result of an increase in computer processing, hardware and software expense.

 

Operating loss from continuing operations

 

As a result of the aforementioned factors, we reported a loss from continuing operations of $388,563 in Third Quarter 2015, as compared to $297,802 in Third Quarter 2014.

 

Other income (expenses)

 

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

 

Interest expense is attributable to interest on the Company’s loans with Co-Investment Fund II, L. P., SVB, capital leases and note payable for premium financing on a portion of the Company’s insurance coverages. The increase in interest expense is primarily the result of interest on the Company’s loan with Co-Investment Fund II, L. P. and the early termination of the loan with SVB, which resulted in the payment by the Company to SVB of an early termination fee of $52,500.

 

 

Gain on discontinued operations

 

Results from discontinued operations were as follows:

 

		For the Three Months Ended September 30,
		2015				2014
Revenues:
Commission and other revenue from carriers		$	3,633			$	5,861
Transition policy commission pursuant to the Agreement			39,680				56,884
			43,313				62,745
Operating expenses:
Other general and administrative			6,267				6,267
			6,267				6,267
Income from discontinued operations		$	37,046			$	56,478

 

For Third Quarter 2015 we earned revenues from discontinued operations of $43,313 as compared to $62,745 in the Third Quarter 2014, a decrease of $19,432, or 34%. Revenues include the following:

 

·

In Third Quarter 2015 our commission and other revenue from carriers decreased due to the declines in our discontinued telesales call center produced agency business.

 

·

On February 20, 2009, the Company entered into and completed the sale of its agency business to eHealth Insurance Services, Inc., an unaffiliated third party, pursuant to the terms of a client transition agreement. In Third Quarter 2015 our transition policy commission pursuant to the agreement decreased due to the declines in our telesales call center produced agency business.

 

As a result of the aforementioned factors, we reported a gain from discontinued operations of $37,046 or $0.00 gain from discontinued operations per share in Third Quarter 2015 as compared to $56,478 or $0.00 gain from discontinued operations per share in Third Quarter 2014.

 

Net loss

 

As a result of these factors discussed above, we reported a net loss of $394,447, or $0.04 net loss per share, in Third Quarter 2015 as compared to a net loss of $213,694 or $0.01 net loss per share in Third Quarter 2014.

 

 

RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2015 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2014

 

Revenues

 

For the nine months ended September 30, 2015 (“2015 To Date”), we earned revenues of $15,702,781 compared to $13,818,009 for the nine months ended September 30, 2014 (“2014 To Date”), an increase of $1,884,772 or 14%. Revenues include the following:

 

		For the Nine Months Ended September 30,
		2015				2014
Professional services		$	8,551,364			$	7,831,030
ASP revenue			4,711,275				3,477,023
Sales of software licenses			1,036,624				1,300,000
Maintenance revenue			1,349,329				1,202,762
Sub-leasing and other revenue			54,189				7,194
Total		$	15,702,781			$	13,818,009

 

·

In 2015 To Date our professional services revenue increased $720,334, or 9%, as a result of higher billable implementation services. Implementation services included assisting clients in setting up their insurance products in InsPro EnterpriseTM, providing modifications to InsPro Enterprise’s functionality to support the client’s business, interfacing InsPro Enterprise with the client’s other systems, automation of client correspondence to their customers and data conversion from the client’s existing systems to InsPro Enterprise. Post implementation services include these same services to existing clients supporting their ongoing utilization of InsPro Enterprise.

 

·

In 2015 To Date our ASP revenue increased $1,234,252, or 36%, as a result of increased fees from ongoing and recent implementations of InsPro Enterprise from several existing clients. ASP hosting service enables a client to either lease InsPro Enterprise software, paying only for that capacity required to support their business, or for a client to outsource the operation of their licensed InsPro Enterprise installation to the Company. ASP hosting clients access InsPro Enterprise installed on the Company’s servers located at a third party’s site.

 

·

In 2015 To Date we earned $1,036,624 of license fee revenue, which included an $850,000 license fee for InsPro Enterprise recognized for a recently implemented client and the re-sale of third party software licenses to clients in the process of implementing InsPro Enterprise. In 2014 To Date we earned $1,300,000 of license fee revenue, which was a license fee recognized upon the completion of the implementation of additional insurance products for an existing client.

 

·

In 2015 To Date our maintenance revenue increased $146,567 or 12% as a result of increased fees from several clients’ recent implementations of InsPro Enterprise.

 

·

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

 

 

Cost of Revenues

 

Our cost of revenues for 2015 To Date was $16,339,394 as compared to $11,447,677 for 2014 To Date for an increase of $4,891,717, or 43%, as compared to 2014 To Date. Cost of revenues consisted of the following:

 

		For the Nine Months Ended September 30,
		2015				2014
Compensation, employee benefits and related taxes		$	5,972,150				5,490,307
Professional fees			9,014,589				4,699,308
Depreciation			388,021				488,117
Rent, utilities, telephone and communications			359,334				347,064
Other cost of revenues			605,300				422,881
		$	16,339,394			$	11,447,677

 

·

In 2015 To Date our salaries, employee benefits and related taxes component of cost of revenues increased $481,843, or 9%, as compared to 2014 To Date. Salaries, employee benefits and related taxes increased primarily as a result of increased employee staffing.

 

·

In 2015 To Date our professional fees component of cost of revenues increased $4,315,281, or 92%, as compared to 2014 To Date. Professional fees increased as a result of increased utilization of several outside consulting firms, which were assisting us with modifications to InsPro Enterprise’s functionality and new clients’ implementations of InsPro Enterprise™. In the second quarter of 2014 the Company engaged a third party consulting firm to be a preferred system integrator for InsPro Enterprise, which contributed to the increase in cost.

 

·

In 2015 To Date our depreciation expense component of cost of revenues decreased $100,096, or 21%, as compared to 2014 To Date. Depreciation expense decreased as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for these assets.

 

·

In 2015 To Date our other cost of revenues component of cost of revenues increased $182,419, or 43%, as compared to 2014 To Date. The increase was primarily the result of $177,675 cost of 3rd party licensed software resold to two clients. Other cost of revenues consisted of the cost of 3rd party licensed software 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 loss of $636,613 in 2015 To Date, as compared to a gross profit of $2,370,332 in 2014 To Date. The results from operations in 2015 To Date were unfavorably impacted by higher cost of revenues, a result of increased utilization of several outside consulting firms, to assist with modifications to InsPro Enterprise’s functionality and new clients’ implementations of InsPro Enterprise™.

 

 

Selling, General and Administrative Expenses

 

Our selling, general and administrative expense for 2015 To Date was $4,481,886 as compared to $5,780,493 for 2014 To Date for a decrease of $1,298,607, or 23%, as compared to 2014 To Date. Selling, marketing and administrative expenses consisted of the following:

 

		For the Nine Months Ended September 30,
		2015				2014
Compensation, employee benefits and related taxes		$	2,551,107			$	3,793,371
Advertising and other marketing			114,635				239,120
Depreciation			86,514				123,325
Rent, utilities, telephone and communications			270,890				286,040
Professional fees			687,730				742,246
Other general and administrative			771,010				596,391
		$	4,481,886			$	5,780,493

 

·

In 2015 To Date our salaries, employee benefits and related taxes decreased $1,242,264, or 33%, as compared to 2014 To Date. The decrease was primarily the result $1,319,077 of lower equity compensation to directors and certain executives of InsPro LLC partially offset by slightly higher employee staffing.

 

·

In 2015 To Date our advertising and other marketing expenses decreased $124,485, or 52%, as compared to 2014 To Date primarily as a result of reduced marketing activities.

 

·

In 2015 To Date our depreciation expenses decreased $36,811, or 30%, as compared to 2014 To Date. Depreciation expense decreased as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for these assets.

 

·

In 2015 To Date professional fees decreased $54,516, or 7%, as compared to 2014 To Date. The decrease is primarily the result of lower royalty expense incurred to an outside consulting firm in the Second Quarter of 2014 partially offset by higher recruiting expenses. The Company and a consulting firm agreed that the consulting firm would reduce the fees that it charged the Company in 2013 for consideration of a royalty payment.

 

·

In 2015 To Date our other general and administrative expenses increased $174,619, or 29%, as compared to 2014 To Date. The increase is primarily the result of $125,146 increase in the allowance for doubtful collection of accounts receivable.

 

Operating loss from continuing operations

 

As a result of the aforementioned factors, we reported a loss from continuing operations of $5,118,499 in 2015 To Date, as compared to $3,410,161 in 2014 To Date.

 

 

Other income (expenses)

 

Gain on the sale of equipment was the result of the sale of certain computer equipment to InsPro Enterprise clients.

 

Interest expense is attributable to interest on the Company’s loans with Co-Investment Fund II, L. P., Silicon Valley Bank (“SVB”), capital leases and note payable for premium financing on a portion of the Company’s insurance coverages. The increase in interest expense is primarily the result of interest on the Company’s loan with Co-Investment Fund II, L. P. and the early termination of the loan with SVB, which resulted in the payment of an early termination fee of 52,500.

 

Gain on discontinued operations

 

Results from discontinued operations were as follows:

 

		For the Nine Months Ended September 30,
		2015				2014
Revenues:
Commission and other revenue from carriers		$	12,320			$	23,099
Transition policy commission pursuant to the Agreement			126,208				186,451
			138,528				209,550
Operating expenses:
Other general and administrative			21,745				21,055
			21,745				21,055
Income from discontinued operations		$	116,782			$	188,495

 

For 2015 To Date we earned revenues from discontinued operations of $138,528 as compared to $209,550 in the 2014 To Date, a decrease of $71,022, or 34%. Revenues include the following:

 

·

In 2015 To Date our commission and other revenue from carriers decreased due to the declines in our discontinued telesales call center produced agency business.

 

·

On February 20, 2009, the Company entered into and completed the sale of its agency business to eHealth Insurance Services, Inc., an unaffiliated third party, pursuant to the terms of a client transition agreement. In 2015 To Date our transition policy commission pursuant to the agreement decreased due to the declines in our telesales call center produced agency business.

 

As a result of the aforementioned factors, we reported a gain from discontinued operations of $116,782 or $0.00 gain from discontinued operations per share in 2015 To Date as compared to $188,495 or $0.00 gain from discontinued operations per share in 2014 To Date.

 

Net loss

 

As a result of these factors discussed above, we reported a net loss of $5,105,174, or $0.12 net loss per share, in 2015 To Date as compared to a net loss of $3,202,594 or $0.08 net loss per share in 2014 To Date.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

At September 30, 2015, we had a cash balance of $1,968,421 and a working capital deficit of ($1,130,740).

 

Net cash used by operations was $4,184,594 in 2015 To Date as compared to net cash provided of $661,689 in 2014 To Date. Impacting our cash flow from operations was our net loss of $5,105,174 in 2015 To Date as compared to our net loss of $3,202,594 in 2014 To Date and:

 

·

Increases in accounts receivable of $4,287,860 in 2015 To Date, which is primarily the result of $2,500,000 Reseller Fee and increased billings to clients primarily for unearned licensed fees and annual maintenance billings and to a lesser extent higher billings for ASP and hosting fees.

 

·

Increases in accounts payable of $1,298,909 in 2015 To Date, which is primarily the result of increased cost to several outside IT consulting firms.

 

·

Increases in accrued expenses of $155,632 in 2015 To Date, which is primarily the result of increased IT consulting services.

 

·

Increases in deferred revenue of $2,706,139 in 2015 To Date, which is primarily the result of $2,500,000 Reseller Fee, which was uncollected and unearned in 2015 To Date, and license and annual maintenance fee deposits, which were collected but not earned in 2015 To Date.

 

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 $474,535 and $611,442 in 2015 To Date and 2014 To Date, respectively.

 

·

Recorded stock-based compensation and consulting expense of $433,473 and $1,752,550 in 2015 To Date and 2014 To Date, respectively.

 

Net cash used by investing activities in 2015 To Date was $50,135 as compared to $534,300 in 2014 To Date.

 

Net cash provided by financing activities in 2015 To Date was $2,772,149 as compared to $106,423 of cash used in 2014 To Date.

 

·

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

 

 

·

On January 30, 2015, the Company and InsPro LLC (collectively, the “Borrows”) issued a Secured Convertible Promissory Note (“Note”) to The Co-Investment Fund II, L.P., a holder of more than 5% of our common stock on an as converted basis (“Co-Investment”), pursuant to a Secured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”). In connection with the Note Purchase Agreement, the Borrowers entered into a Security Agreement (the “Security Agreement”, and together with the Note and the Note Purchase Agreement, the “Financing Agreements”). Pursuant to the terms and subject to the conditions set forth in the Financing Agreements, Co-Investment provided a loan in the amount of $1,000,000 (“Loan”) to the Borrowers, which is secured by all assets of the Company and InsPro Technologies other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (“Collateral”). Pursuant to the Note, interest in the amount of 8% per annum, calculated on a 365 or 366 day year, as the case may be, and the principal amount of $1,000,000 and accrued interest will be paid on or before June 30, 2016. Co-Investment has the right to convert principal and accrued interest into the equity securities of the Company in the event that the Company issues and sells equity securities to investors on or before the repayment in full of the Note in an equity financing resulting in gross proceeds to the Company of at least $1,000,000.

 

·

On March 17, 2015, the Company received a loan from Edmond Walters, a current director of the Company, in the amount of $500,000 (the “Walters Loan”). The Walters Loan was a pre-payment by Mr. Walters in connection with any future issuance of equity securities of the Company, and is convertible into equity securities of the Company in connection with any such future issuance of equity securities as agreed to by the Company and Mr. Walters. The Walters Loan is refundable to Mr. Walters on demand, without interest, if the Company does not consummate an equity financing within a time period to be determined by the Company and Mr. Walters.

 

·

On March 27, 2015, the Borrowers issued a second Secured Convertible Promissory Note (“The Second Note”) in the amount of $1,000,000 to Co-Investment pursuant to a second Secured Convertible Promissory Note Purchase Agreement (the “Second Note Purchase Agreement”). The terms of the Second Note are essentially identical to the terms of the Note and the terms of the Second Note Purchase Agreement are essentially identical to the terms of the Note Purchase Agreement.

 

·

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

 

o

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

 

o

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

 

o

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

 

·

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

 

 

·

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

 

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

 

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 †

* 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: November 16, 2015	INSPRO TECHNOLOGIES CORPORATION
	By:	/s/ ANTHONY R. VERDI
		Anthony R. Verdi
		Chief Financial Officer
		(Principal 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.