10-Q 1 tv521069_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2019

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

For the transition period from to

Commission file number 000-51701

INSPRO TECHNOLOGIES Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware		98-0438502
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

1510 Chester Pike

Suite 400

Eddystone, Pennsylvania 19022

(Address of Principal Executive Offices) (Zip Code)

(484) 654-2200

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

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

Securities registered pursuant to Section 12(b) of the Act: None

As of May 15, 2019, there were 41,673,655 outstanding shares of common stock, par value $0.001 per share, 1,270,250 shares of Series A Convertible Preferred Stock, par value $0.001 per share, 5,307,212 shares of Series B Convertible Preferred Stock, par value $0.001 per share, and 1,254,175 shares of Series C Convertible Preferred Stock, par value $0.001 per share, of the registrant.

INSPRO TECHNOLOGIES Corporation
Form 10-Q Quarterly Report
INDEX

PART I FINANCIAL INFORMATION
Item 1	Financial Statements

	Consolidated Balance Sheets as of March 31, 2019 (UNAUDITED) and December 31, 2018	3
	Consolidated Statements of Operations (UNAUDITED) for the three months ended March 31, 2019 and 2018	4
	Consolidated Statement of Changes in Shareholders' Equity (UNAUDITED) for the three months Ended March 31, 2019 and 2018	5
	Consolidated Statements of Cash Flows (UNAUDITED) for the three months ended March 31, 2019 and 2018	6
	Notes to UNAUDITED Consolidated Financial Statements	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 4	Controls and Procedures	37

PART II OTHER INFORMATION

Item 1	Legal Proceedings	37

Item 6	Exhibits	37

	Signatures	38

Page 2

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash	$	5,816,855		$	5,100,660
Accounts receivable, net		2,015,230			3,146,597
Tax receivable		13,000			13,000
Prepaid expenses		304,864			305,643

Total current assets		8,149,949			8,565,900

LONG TERM ASSETS:
Property and equipment, net		1,726,493			594,767
Operating lease right of use asset		934,867			-
Prepaid assets		237,801			-

Total long term assets		2,899,161			594,767

Total assets	$	11,049,110		$	9,160,667

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Notes payable	$	13,905		$	39,025
Accounts payable		1,149,313			1,213,758
Accrued expenses		421,713			905,531
Current portion of finance lease obligations		101,036			115,771
Current portion of equipment loans		789,929			-
Current portion of operating lease		311,312			-
Deferred revenue		3,322,114			2,850,976
Income tax payable		141,000			141,000

Total current liabilities		6,250,322			5,266,061

LONG TERM LIABILITIES:
Deferred revenue		875,000			875,000
Finance lease obligations		127,594			150,559
Equipment loans		1,053,625			-
Operating lease		623,555			-

Total long term liabilities		2,679,774			1,025,559

Total liabilities		8,930,096			6,291,620

COMMITMENTS AND CONTINGENCIES: (See Note 8)

SHAREHOLDERS' EQUITY:
Preferred stock ($.001 par value; 20,000,000 shares authorized)
Series A convertible preferred stock; 3,437,500 shares designated, 1,270,250 shares issued and outstanding (liquidation value $12,702,500)		1,271			1,271
Series B convertible preferred stock; 11,000,000 shares designated, 5,307,212 shares issued and outstanding (liquidation value $15,921,636)		5,307			5,307
Series C convertible preferred stock; 4,000,000 shares designated, 1,254,175 shares issued and outstanding (liquidation value $6,270,875)		1,254			1,254
Common stock ($.001 par value; 750,000,000 shares authorized, 41,673,655 shares issued and outstanding)		41,673			41,673
Additional paid-in capital		65,372,611			65,371,361
Accumulated deficit		(63,303,102	)		(62,551,819	)

Total shareholders' equity		2,119,014			2,869,047

Total liabilities and shareholders' equity	$	11,049,110		$	9,160,667

See accompanying notes to unaudited consolidated financial statements.

Page 3

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ending March 31,
	2019			2018
	(Unaudited)			(Unaudited)

Revenues	$	3,601,600		$	6,187,747

Cost of revenues		3,192,398			3,567,525

Gross profit		409,202			2,620,222

Selling, general and administrative expenses		1,135,057			1,590,254

(Loss) income from operations		(725,855	)		1,029,968

Other income (expense):
Interest expense		(25,428	)		(6,224	)

Total other expense		(25,428	)		(6,224	)

(Loss) income before income taxes		(751,283	)		1,023,744

Provision for income taxes		-			95,000

Net (loss) income	$	(751,283	)	$	928,744

Net (loss) income per common share:
Net (loss) income per common share - basic	$	(0.02	)	$	0.02
Net (loss) income per common share - fully diluted	$	(0.02	)	$	0.00

Weighted average common shares outstanding - basic		41,673,655			41,543,655
Weighted average common shares outstanding - fully diluted		41,673,655			198,306,395

See accompanying notes to unaudited consolidated financial statements.

Page 4

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

UNAUDITED

	Series A Preferred Stock,				Series B Preferred Stock,				Series C Preferred Stock,				Common Stock, $.001
	$.001 Par Value				$.001 Par Value				$.001 Par Value				Par Value

	Number of Shares		Amount		Number of Shares		Amount		Number of Shares		Amount		Number of Shares		Amount		Additional Paid-in Capital		Accumulated Deficit			Total Shareholders' Equity (Deficit)

Balance - December 31, 2017		1,276,750	$	1,277		5,307,212	$	5,307		1,254,175	$	1,254		41,543,655	$	41,543	$	65,365,386	$	(65,030,274	)	$	384,493

Amortization of deferred compensation																		2,349					2,349

Net income for the period																				928,744			928,744

Balance - March 31, 2018		1,276,750	$	1,277		5,307,212	$	5,307		1,254,175	$	1,254		41,543,655	$	41,543	$	65,367,735	$	(64,101,530	)	$	1,315,586

Balance - December 31, 2018		1,270,250	$	1,271		5,307,212	$	5,307		1,254,175	$	1,254		41,673,655	$	41,673	$	65,371,361	$	(62,551,819	)	$	2,869,047

Amortization of deferred compensation																		1,250					1,250

Net loss for the period																				(751,283	)		(751,283	)

Balance - March 31, 2019		1,270,250	$	1,271		5,307,212	$	5,307		1,254,175	$	1,254		41,673,655	$	41,673	$	65,372,611	$	(63,303,102	)	$	2,119,014

See accompanying notes to unaudited consolidated financial statements.

Page 5

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ending March 31,
	2019			2018
	(Unaudited)			(Unaudited)
Cash Flows From Operating Activities:
Net (loss) income	$	(751,283	)	$	928,744
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation		109,420			57,201
Stock-based compensation		1,250			2,349
Accounts receivable doubtful account expense		-			334,460
Changes in assets and liabilities:
Accounts receivable		1,131,367			(2,234,227	)
Prepaid expenses		170,637			110,681
Other current assets		-			3,806
Accounts payable		(64,445	)		(272,596	)
Accrued expenses		(89,633	)		(129,911	)
Deferred revenue		471,138			733,934
Income tax payable		-			95,000

Net cash provided by (used in) operating activities		978,451			(370,559	)

Cash Flows From Investing Activities:
Purchase of property and equipment		(93,435	)		(8,843	)

Net cash used in investing activities		(93,435	)		(8,843	)

Cash Flows From Financing Activities:
Payments on notes payable		(25,120	)		(26,931	)
Payments on finance leases		(37,700	)		(41,362	)
Payments on equipment loans		(106,001	)		-

Net cash used in financing activities		(168,821	)		(68,293	)

Net increase (decrease) in cash		716,195			(447,695	)

Cash - beginning of the period		5,100,660			5,017,539

Cash - end of the period	$	5,816,855		$	4,569,844

Supplemental Disclosures of Cash Flow Information
Cash payments for interest	$	25,428		$	6,224
Non cash investing and financing activities:
Equipment acquired through capital leases	$	-		$	54,727
Equipment and prepaid assets aquired through equipment loans	$	1,949,555		$	-
Operating lease right of use asset and operating lease liabilities	$	934,867		$	-

See accompanying notes to unaudited consolidated financial statements.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

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 Application Service Provider (“ASP”) basis. InsPro Enterprise is an insurance administration and marketing system that supports group and individual business lines, and efficiently processes agent, direct market, worksite and web site generated business. InsPro Technologies' customers 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, 2018 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”) on April 1, 2019.

The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries InsPro Technologies, LLC (“InsPro LLC”), Atiam Technologies GP, LLC, Atiam Technologies, LP, HBDC II, Inc., HBDC Sub, Inc. Corporation, Platinum Partners, LLC and Insurance Specialist Group. 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 2019 and 2018 include the allowance for doubtful accounts, stock-based compensation, the useful lives and valuation of property and equipment, valuation of deferred tax assets, 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.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

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

Accounts receivable and allowance for uncollectable accounts

The Company has a policy of establishing an allowance for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. At March 31, 2019 and December 31, 2018, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amount of $0 and $0, respectively.

Fair value of financial instruments

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and finance leases approximated fair value as of March 31, 2019 and December 31, 2018, because of the relatively short-term maturity of these instruments and their market interest rates.

The Company follows Financial Accounting Standards Board (“FASB”) ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements.

Property and equipment

Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. In accordance with Statement of Financial Accounting Standards ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Impairment of long-lived assets

The Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset's estimated fair value and its book value.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

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. The Company has not yet filed its tax returns for the tax year ended December 31, 2018. As of March 31, 2019, the tax years ended December 31, 2018, 2017 and 2016 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.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

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

The Company's weighted average common shares outstanding used in computing fully diluted net income per common share include the following:

	For the Three Months Ended March 31,
	2019		2018

Common stock		41,673,655		41,543,655
Conversion of series A convertible preferred stock issued and outstanding into common stock		-		25,535,000
Conversion of series B convertible preferred stock issued and outstanding into common stock		-		106,144,240
Conversion of series C convertible preferred stock issued and outstanding into common stock		-		25,083,500

Shares used in computing fully diluted net income (loss) per share		41,673,655		198,306,395

For the three months ended March 31, 2019, the effects of common stock equivalents and potentially dilutive securities outstanding during this period, are excluded from the calculation of diluted loss per common share because they are anti-dilutive.

For the three months ended March 31, 2018, the effects of options and warrants to purchase the Company’s common stock, which were outstanding during this period, are excluded from the calculation of common stock equivalents because they are out-of-the-money (their exercise prices are greater than the market price of the Company’s Common Stock as of March 31, 2018).

The Company’s issued and outstanding convertible preferred stock is convertible into common stock at a ratio of 20 common shares for each share of preferred stock.

Revenue recognition and deferred revenue

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 the Company. Alternatively, on an ASP basis a client leases the InsPro Enterprise software, paying only for that capacity required to support their business. ASP and hosting customers access InsPro Enterprise installed on customers’ servers or on the Company’s servers located at a third party’s site.

The Company’s software maintenance fees apply to both licensed and ASP customers. 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 or post-implementation of InsPro Enterprise for either an ASP or licensed client. Implementation services include InsPro Enterprise installation, configuration and modification of InsPro Enterprise functionality, client insurance plan set-up, client insurance document design and system documentation. Post-implementation services include these same services to existing customers supporting their ongoing utilization of InsPro Enterprise.

The Company’s revenue is recognized under FASB ASC 606 Revenue from Contracts with Customers (“ASC 606”). See Note 2 Revenue and deferred revenue.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

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. Cost of revenues also includes customer management, training and technical support, the cost of third party software and hardware that is sold to clients along with a portion of facilities costs and depreciation. The following table discloses cost of revenue as reported in the statement of operations.

	For the Three Months Ended March 31,
	2019		2018

Compensation, employee benefits and related taxes	$	1,683,126	$	1,753,933
Professional fees		1,261,317		1,585,905
Depreciation		81,433		40,437
Rent, utilities, telephone and communications		103,463		93,198
Other cost of revenues		63,059		94,052

	$	3,192,398	$	3,567,525

Selling, general and administrative expenses

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

	For the Three Months Ended March 31,
	2019		2018

Compensation, employee benefits and related taxes	$	654,299	$	839,213
Advertising and other marketing		12,888		4,988
Depreciation		27,987		16,764
Rent, utilities, telephone and communications		35,920		39,460
Professional fees		101,941		159,543
Other general and administrative		302,022		530,286

	$	1,135,057	$	1,590,254

Advertising and other marketing

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

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

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

Concentrations of credit risk

The Company maintains its cash and restricted cash in bank deposit accounts, which exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation (“FDIC”). At March 31, 2019, the Company had $5,868,457 of cash in United States bank deposits, of which $501,235 was federally insured and $5,367,222 was not federally insured. At December 31, 2018, the Company had $5,161,810 of cash in United States bank deposits, of which $501,177 was federally insured and $4,660,633 was not federally insured.

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

	March 31, 2019			December 31, 2018

Client #1		28	%		35	%
Client #2		21	%		20	%
Client #3		11	%		13	%
Client #4		11	%		-

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

	For the Three Months Ended March 31,
	2019			2018

Client #1		28	%		49	%
Client #2		18	%		14	%
Client #3		11	%		-

Stock-based compensation

The Company accounts for stock based compensation transactions using a fair-value-based method and recognizes compensation cost for share-based payments to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied.

In June 2018, the FASB issued updated guidance to simplify the accounting for nonemployee share-based payment transactions. The new guidance generally requires equity-classified nonemployee share-based payment awards to be measured at the grant date, which is the date at which a grantor and grantee reach a mutual understanding of the key terms and conditions of a share-based payment award. This update generally aligns the accounting for equity-classified share-based payment awards to nonemployees with the measurement date required for employees. The Company adopted the new guidance on January 1, 2019 and its application did not have a material impact on the Company’s financial statements.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

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

Registration rights agreements

At March 31, 2019, the Company does not believe that it will incur a penalty in connection with the Company’s registration rights agreements. Accordingly, no liability in respect thereof was recorded as of March 31, 2019. See Note 5 - Stockholders Equity – 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.

On January 1, 2018, the Company adopted ASC 606, which provides guidance for revenue recognition. See Note 2 - Revenue and deferred revenue.

On January 1, 2019, the Company adopted ASU No. 2016-02 Leases (Topic 842) (“ASU 2016-02”), which provides guidance for accounting for leases with a term greater than 12 months. See Note 6 – Operating and Finance Lease Obligations.

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”).” For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for the Company at the beginning of fiscal year 2020. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. The adoption of ASU 2016-13 is not expected to have a material effect on the Company’s consolidated financial statements.

Liquidity

During the three months ended March 31, 2019, the Company’s net loss was $751,283 and cash provided by operations was $978,451. As of March 31, 2019, the Company had $5,816,855 of cash, working capital of $1,899,627 and the Company’s shareholders’ equity was $2,199,014.

Our liquidity needs for the next 12 months and beyond are principally for the funding of our operations, payments on equipment loans, finance leases and the purchase of property and equipment. Based on the foregoing, management believes the Company has sufficient funds to finance its operations for twelve months from the date this report was issued.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 2 – REVENUE AND DEFERRED REVENUE

We adopted ASC 606 effective January 1, 2018 to (i) all new contracts entered into after January 1, 2018 and (ii) all existing contracts for which all (or substantially all) of the revenue has not been recognized under legacy revenue guidance, using the modified retrospective transition method, which means ASC 606 has been applied to the Company’s 2018 financial statements and disclosures going forward, but that prior period financial statements and disclosures reflect the prior revenue recognition standard. The adoption of ASC 606 did not result in a change to the opening balance of accumulated deficit.

During the implementation of ASC 606 we identified five broad revenue streams: 1) professional services, 2) sale of perpetual software licenses and sale of equipment, 3) ASP and hosting revenue, 4) maintenance revenue, and 5) Reseller Fee (as defined below). The following table discloses revenue by revenue stream.

	For the Three Months Ended March 31,
	2019		2018

Professional services	$	1,172,625	$	3,770,341
ASP and hosting revenue		1,933,344		2,003,891
Maintenance revenue		491,921		382,518
Sale of equipment		-		23,797
Other revenue		3,710		7,200

Total	$	3,601,600	$	6,187,747

Professional services consist of pre- and post-implementation services pertaining to InsPro Enterprise installation, configuration and modification of InsPro Enterprise^TM functionality, client insurance plan set-up, client insurance document design and system documentation, training and data migration. Once these services are performed for a client they cannot be returned by the client to the Company and the Company cannot provide the same services to any other client without substantial rework needed to satisfy another client’s needs. We primarily recognize professional services revenue on a time and materials basis. Under the new standard, we elect to apply the "right to invoice" practical expedient outlined in ASC 606-10-55-18. The invoice amount represents the number of hours of time worked by each worker multiplied by the contractual bill rate for the type of work billed. As such, the Company recognizes revenue in the amount for which it has the right to invoice.

ASP hosting enables a client to effectively lease the InsPro Enterprise software, paying only for that capacity required to support their business during the contacted time period. Hosting Service can also enable a client to outsource its application management of its perpetually licensed InsPro Enterprise software to the Company. ASP hosting clients access InsPro Enterprise installed on InsPro Technologies owned servers. Maintenance enables a client to periodic updates to their InsPro Enterprise software and access to customer support from the Company. We have determined the Company’s continuous service and support represent a series of performance obligations that are delivered over time on a stand-ready basis.

Page 14

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 2 – REVENUE AND DEFERRED REVENUE (Continued)

Effective August 18, 2015, the Company entered into a five year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated third party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective customers for their administration of long term care insurance products for an initial fee of $2,500,000 (the “Reseller Fee”). Pursuant to the Reseller Agreement, the Reseller Fee is fully or partially refundable to the Reseller in the event that the Company materially breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation or seeks protection under bankruptcy during the term of the Reseller Agreement. Under ASC 606, the Company believes the contractual specific refund amounts and time frames pertaining to events that may result in a refund represent separate performance obligations over the duration of the Reseller Agreement (“Reseller Performance Obligations”), which the Reseller Agreement has contractually specified the prices for each separate performance deliverable. Revenue recognition is deemed to be consistent under both ASC 606 and the previous standard.

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.

The following table discloses changes in unearned revenue as of and for the three months ended March 31, 2019.

	As of March 31, 2019

Short Term
Balance at the beginning of the period	$	2,850,976
Deferral of revenue		873,040
Reclassification of unearned revenue from long term to short term		-
Recognition of unearned revenue		(401,902	)

Balance at the end of the period	$	3,322,114

Long Term
Balance at the beginning of the period	$	875,000
Deferral of revenue		-
Reclassification of unearned revenue from long term to short term		-
Recognition of unearned revenue		-

Balance at the end of the period	$	875,000

Deferral of revenue in the three months ended March 31, 2019 and 2018 was $873,040 and $1,061,088, respectively. This deferred revenue primarily represents annual maintenance fees, which were invoiced at the beginning of customers’ annual maintenance contracts, which pertain to performance obligations not realized as of March 31, 2019 and 2018.

Revenue recognized in the three months ended March 31, 2019 and 2018, which was included in the unearned revenue liability balance at the beginning of each year, was $401,902 and $327,153, respectively, which represents maintenance and professional services performed.

Long term unearned revenue pertains to the portion of the Reseller Fee associated with Reseller Performance Obligations that will occur more than 12 months from March 31, 2019 and 2018, respectively.

Page 15

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	Useful Life (Years)	March 31, 2019			December 31, 2018
Computer equipment and software	3	$	6,399,462		$	5,158,316
Office equipment	4.6		145,229			145,229
Leasehold improvements	5.4		81,933			81,933
			6,626,624			5,385,478

Less accumulated depreciation			(4,900,131	)		(4,790,711	)

		$	1,726,493		$	594,767

See Note 6 – Operating and Finance Lease Obligations.

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

	For the Three Months Ended March 31,
	2019		2018

Depreciation included in cost of revenues	$	81,433	$	40,437
Depreciation included in selling, general and administrative		27,987		16,764
Total depreciation	$	109,420	$	57,201

NOTE 4 – NOTES PAYABLE AND EQUIPMENT LOANS

Notes Payable

Notes payable at December 31, 2018, consist of two notes payable for insurance premium financing on two of the Company’s insurance policies. The first note commenced on May 3, 2018, has an annual interest rate of 9.98% and consists of 11 monthly payments of principal and interest of $3,204 per month commencing on June 3, 2018 and ending on April 3, 2019. The balance for this note was $12,552 as of December 31, 2018. The second note commenced on July 30, 2018, has an annual interest rate of 8.76% and consists of 9 monthly payments of principal and interest of $5,434.53 per month commencing on September 28, 2018 and ending on May 28, 2019. The balance for this note was $26,473 as of December 31, 2018.

Page 16

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 4 – NOTES PAYABLE AND EQUIPMENT LOANS (continued)

Notes payable at March 31, 2019, consist of two notes payable for insurance premium financing on two of the Company’s insurance policies. The first note commenced on May 3, 2018, has an annual interest rate of 9.98% and consists of 11 monthly payments of principal and interest of $3,204 per month commencing on June 3, 2018 and ending on April 3, 2019. The balance for this note was $3,177 as of March 31, 2019. For the three months ended March 31, 2019, the interest expense incurred on this note was $236. The second note commenced on July 30, 2018, has an annual interest rate of 8.76% and consists of 9 monthly payments of principal and interest of $5,435 per month commencing on September 28, 2018 and ending on May 28, 2019. The balance for this note was $10,728 as of March 31, 2019. For the three months ended March 31, 2019, the interest expense on this note was $559.

Equipment Loans

On January 5, 2019, InsPro LLC entered into a financing arrangement with an unaffiliated company to finance the purchase of certain third party perpetual software licenses and software subscription and maintenance. The amount financed was $801,843, which included $756,456 cost of purchased software licenses and software subscription and maintenance services plus $45,387 of applicable sales tax. The financing arrangement commenced on January 5, 2019, has an annual interest rate of 6.1% and consists of 36 equal monthly payments of principal, interest and applicable sales tax of $24,432 commencing on February 1, 2019 and ending on January 1, 2022. The balance for this loan was $740,475 as of March 31, 2019. The Company’s right to use the purchased software licenses and software subscription and maintenance services is contingent on the Company remaining in compliance with the terms of this loan. As of March 31, 2019, the Company is in compliance with this loan. For the three months ended March 31, 2019, the interest expense on this loan was $11,926.

On February 28, 2019, InsPro LLC entered into a financing arrangement with an unaffiliated company to finance the purchase of perpetual software licenses for third party software products. The amount financed was $1,147,712. The financing arrangement has an annual interest rate of 7.13% and consists of 24 equal monthly payments of principal, interest of $51,456, which commenced in March, 2019 and will end on February 1, 2021. The balance for this loan was $1,103,079 as of March 31, 2019. The Company’s right to use the purchased software licenses and software subscription and maintenance services is contingent on the Company remaining in compliance with the terms of this loan. As of March 31, 2019, the Company is in compliance with this loan. For the three months ended March 31, 2019, the interest expense on this loan was $6,823.

NOTE 5 – STOCKHOLDERS’ EQUITY

Common Stock

The Company was authorized to issue 750,000,000 shares of common stock, respectively, with a par value of $0.001 per share (“Common Stock”). As of March 31, 2019 and December 31, 2018, the Company had 41,673,655 shares of its Common Stock issued and outstanding.

Page 17

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 5 – STOCKHOLDERS’ EQUITY (Continued)

Series A Preferred Stock

The board of directors of the Company (the “Board”) has designated 3,437,500 shares of Series A Convertible Preferred Stock, with a par value $0.001 per share (“Series A Preferred Stock”). As of March 31, 2019 and December 31, 2018, the Company had 1,270,250 shares of its Series A Preferred Stock issued and outstanding.

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

Upon the liquidation, sale or merger of the Company, each share of Series A Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to two and a half (2.5) times the Series A Preferred Stock original issue price, or $12,767,500 in aggregate, subject to certain customary adjustments, or (B) the amount such share of Series A Preferred Stock would receive if it participated pari passu with the holders of Common Stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series A Preferred Stock times $10.00. Series A Preferred Stock is junior to Series B Convertible Preferred Stock par value $0.001 per share (“Series B Preferred Stock”) and the Series C Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”), as it pertains to liquidation preferances.

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

For so long as any shares of Series A Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series A Preferred Stock is required to approve any amendment to the Company’s certificate of incorporation or bylaws that would adversely alter the voting powers, preferences or special rights of the Series A Preferred Stock or any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series A Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series A Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series A Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series A Preferred Stock with an amount per share equal to two and a half (2.5) times the Series A Preferred Stock original issue price, or $12,702,500, in aggregate for all issued and outstanding Series A Preferred Stock.

Series B Preferred Stock

The Board has designated 11,000,000 shares of Series B Convertible Preferred Stock, with a par value $0.001 per share (“Series B Preferred Stock”). As of March 31, 2019 and December 31, 2018, the Company had 5,307,212 of its Series B Preferred Stock issued and outstanding.

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.

Page 18

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 5 – STOCKHOLDERS’ EQUITY (Continued)

As of March 31, 2019 and December 31, 2018, upon the liquidation, sale or merger of the Company, each share of Series B Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to the Series B Preferred Stock original issue price, or $15,921,636 in aggregate, subject to certain customary adjustments, or (B) the amount such share of Series B Preferred Stock would receive if it participated pari passu with the holders of Common Stock and preferred stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series B Preferred Stock times $3.00. Series B Preferred Stock is senior to Series A Preferred Stock, and junior to the Series C Preferred Stock, as it pertains to liquidation preferances.

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

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 (A) 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 (B) any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series B Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series B Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series B Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series B Preferred Stock with an amount per share equal the Series B Preferred Stock original issue price, or $15,921,636, in aggregate for all issued and outstanding Series B Preferred Stock.

Series C Preferred Stock

The Board has designated 4,000,000 shares of Series C Convertible Preferred Stock, with a par value $0.001 per share (“Series C Preferred Stock”). As of March 31, 2019 and December 31, 2018, the Company had 1,254,175 of its Series C Preferred Stock issued and outstanding.

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

Upon the liquidation, sale or merger of the Company, each share of Series C Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to two and a half (2.5) times the Series C Preferred Stock original issue price, or $6,270,875 in aggregate, subject to certain customary adjustments, or (B) the amount such share of Series C Preferred Stock would receive if it participated pari passu with the holders of Common Stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series C Preferred Stock times $5.00. Series C Preferred Stock is senior to Series A Preferred Stock and to Series B Preferred Stock as it pertains to liquidation preferances.

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

Page 19

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 5 – STOCKHOLDERS’ EQUITY (Continued)

For so long as any shares of Series C Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series C Preferred Stock is required to approve (A) any amendment to the Company’s certificate of incorporation or bylaws that would adversely alter the voting powers, preferences or special rights of the Series C Preferred Stock or (B) any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series C Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series C Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series C Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series C Preferred Stock with an amount per share equal to two and a half (2.5) times the Series C Preferred Stock original issue price, or $6,270,875, in aggregate for all issued and outstanding Series C Preferred Stock.

Stock Options

There are 30,000,000 shares of our Common Stock authorized to be issued under the Company’s 2010 Equity Compensation Plan, of which 28,296,980 shares of our Common Stock remain available for future stock option grants.

The Company recorded compensation expense pertaining to employee stock options and warrants in the amount of $1,250 and $2,349 for the three months ended March 31, 2019 and 2018, respectively.

The value of equity compensation not yet expensed pertaining to unvested equity compensation for options to purchase common stock was $5,000 as of March 31, 2019, which will be recognized over a weighted average 1.1 years in the future.

A summary of the Company's outstanding stock options to purchase Common Stock is 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, 2018		700,000	$	0.10	$	0.05		2.0	$	-

For the period ended March 31, 2019
Granted		-		-		-
Exercised		-		-		-
Expired		-		-		-

Outstanding at March 31, 2019		700,000	$	0.10	$	0.05		1.7	$	-
Outstanding and exercisable at March 31, 2019		575,000	$	0.10	$	0.05		1.7	$	-

(1) The aggregate intrinsic value is based on the $0.063 closing price as of March 31, 2019, for the Company’s Common Stock.

Page 20

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 5 – STOCKHOLDERS’ EQUITY (Continued)

Common Stock Warrants

The Company has no outstanding common stock warrants as of March 31, 2019 and December 31, 2018.

Series A Preferred Stock Warrants

Outstanding warrants to purchase the Company’s Series A Preferred Stock at March 31, 2019, have a remaining contractual life of 3.4 years. A summary of the status of the Company's outstanding Series A Preferred Stock warrants is as follows:

			Weighted
	Preferred		Average
	Stock		Exercise
	Warrants		Price

Outstanding and exercisable at December 31, 2018		25,000	$	4.00

For the period ended March 31, 2019
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding and exercisable at March 31, 2019		25,000	$	4.00

Series B Preferred Stock Warrants

Outstanding preferred stock warrants to purchase the Company’s Series B Preferred Stock at March 31, 2019, have a remaining contractual life of 0.1 years. A summary of the status of the Company's outstanding Series B Preferred Stock warrants is as follows:

			Weighted
	Preferred		Average
	Stock		Exercise
	Warrants		Price

Outstanding and exercisable at December 31, 2018		2,820,000	$	3.00

For the period ended March 31, 2019
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding and exercisable at March 31, 2019		2,820,000	$	3.00

Registration and Participation Rights

As of March 31, 2019, the Company has not received a demand notice in connection with any of the Company’s various registration rights agreements.

Page 21

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 6 – OPERATING AND FINANCE LEASE OBLIGATIONS

On May 10, 2018, InsPro LLC and Baldwin Tower Office Building, LLC (“Landlord”) entered into an eighth amendment to the lease agreement between InsPro LLC and the Landlord for the Company’s Eddystone Pennsylvania office (“Lease Agreement” and “Operating Lease”), whereby InsPro LLC and Landlord agreed to amend the Lease Agreement to extend the term through January 31, 2022 for 17,567 of rentable square feet at a monthly cost of $30,010 for the period February 1, 2019 through January 31, 2022. InsPro LLC may terminate the Lease Agreement effective January 31, 2021, provided InsPro LLC notifies Landlord of an early termination and pays Landlord an early termination fee of $30,000 by October 31, 2020.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (“ASU 2016-02”), which requires all leases with a term greater than 12 months to be recognized on the balance sheet, while lease expenses would continue to be recognized in the statement of operations in a manner similar to current accounting guidance. We adopted ASU 2016-02 effective January 1, 2019, on a modified retrospective basis, without adjusting comparative periods presented. Effective January 1, 2019, the Company established a right-of-use model (ROU) asset in the amount of $1,009,878, an operating lease liability - current in the amount of $307,010 and operating lease liability – long term in the amount of $702,868 for the Lease Agreement, which is the Company’s only lease with a term greater than 12 months. The adoption of ASU 2016-02 did not materially affect our consolidated statement of operations or our consolidated statements of cash flows. We made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet and to recognize all lease payments for leases with a term greater than 12 months on a straight-line basis over the lease term in our consolidated statements of operations.

Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the Company’s statement of operations.

The Company’s subsidiary, InsPro LLC, has entered into several finance lease obligations to purchase equipment used for operations (“Finance Leases”). The Company has the option to purchase the equipment at the end of each finance lease agreement for one dollar.

Page 22

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 6 – OPERATING AND FINANCE LEASE OBLIGATIONS (continued)

Lease expense is reported in the statement of operations as follows:

	For the Three Months Ended March 31,
	2019		2018

Lease expense is reported in the statement of operations as follows:

Operating lease expense

Cost of revenues	$	67,750	$	63,576

Selling, general and administrative expenses		22,280		24,991

Total operating lease expense	$	90,030	$	88,567

Finance lease expense

Interest expense	$	5,884	$	5,320

Supplemental cash flow information related to leases is as follows:

	For the Three Months Ended March 31,
	2019		2018

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	90,030	$	88,567
Financing cash flows from finance leases	$	37,700	$	41,362

Right-of-use assets obtained in exchange for operating lease obligations	$	1,009,878
Equipment acquired through finance lease obligations	$	-	$	54,727

Page 23

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 6 – OPERATING AND FINANCE LEASE OBLIGATIONS (continued)


Supplemental balance sheet information related to leases is as follows:

	March 31, 2019			December 31, 2018
Operating Lease

Operating lease right-of-use-asset	$	934,867

Operating lease - current liability	$	311,312
Operating lease - long term liability		623,555

Total operating lease liabilities	$	934,867

Finance Leases

Property and equipment, gross	$	1,900,711		$	1,900,711
Accumulated depreciation		(1,693,485	)		(1,654,075	)

Property and equipment, net	$	207,226		$	246,636

Finance leases - current liabilities	$	101,036		$	115,771
Finance leases - long term liabilities		127,594			150,559

Total finance lease liabilities	$	228,631		$	266,330

Weighted average remaining lease term (years)
Operating lease		2.8			-
Finance leases		2.7			2.7

Weighted average discount rate
Operating lease		6.1	%		-
Finance leases		9.2	%		9.3	%

Future payments required under Operating Lease and Finance Leases at March 31, 2019, are as follows:

	Operating Lease		Finance Leases

Nine months ending December 31, 2019	$	270,093	$	91,124
2020		360,123		89,124
2021		360,123		36,165
2022		30,010		27,516
2023		-		13,758

Total future payments		1,020,350		257,686
Less amount representing interest		85,483		29,056

Total future payments less interest		934,867		228,630
Less current portion		311,312		101,036

Long-term portion	$	623,555	$	127,594

Page 24

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 7 – DEFINED CONTRIBUTION 401(k) PLAN

The Company implemented a 401(k) plan on January 1, 2007. Eligible employees contribute to the 401(k) plan. Employees become eligible after attaining age 19 and after 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. Effective January 1, 2019, the Company implemented an elective contribution to the plan of 25% of the employee’s contribution up to 6% 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 $25,688 and $18,486 for the three months ended March 31, 2019 and 2018, respectively.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Future minimum payments required under service agreements as of March 31, 2019, are as follows:

Nine months ending December 31, 2019	$	444,155
2020		174,813
2021		135,887

Total	$	754,855

As of December 31, 2018, accrued liabilities included $394,185 pertaining to InsPro LLC’s purchase of third party perpetual software licenses and software subscription and maintenance services. On January 5, 2019, InsPro LLC entered into a financing arrangement with an unaffiliated company to finance this amount plus the cost of additional services. See Note 4 – Notes Payable and Equipment Loans.

On October 24, 2018, David M. Anderson resigned as the Chief Executive Officer and as a member of the Board. The resignation was not the result of any disagreement between the Company and Mr. Anderson on any matter relating to the Company’s operations, policies or practices. On November 2, 2018, the Company and Mr. Anderson entered into a Separation Agreement and Mutual Release (the “Separation Agreement”). The Separation Agreement provides for the payment of certain severance and other benefits (“Severance”) to Mr. Anderson, including the following: (a) salary continuation for three months from November 2, 2018 in accordance with the Company’s normal monthly payroll practices, (b) the monthly reimbursement for payments Mr. Anderson makes for coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, for the period beginning on December 1, 2018 through ending February 28, 2019 and (c) the waiver of Mr. Anderson’s obligation to repay to the Company the relocation benefits paid to Mr. Anderson as set forth in the Employment Agreement. As of December 31, 2018, the Company recorded approximately $103,417 of severance expense as a result of the Separation Agreement, which has been paid to Mr. Anderson as of March 31, 2019.

Page 25

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 9 - INCOME TAXES

The Company has net operating loss carry forwards for federal income tax purposes of approximately $47,020,000 at March 31, 2019, the unused portion of which expires in years 2026 through 2038. The Company accounts for income taxes under Accounting Standards Codification 740, Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Internal Revenue Code Section 382 (“IRC 382”) places a limitation on the amount of taxable income that can be offset by carry forwards after a change in control (generally greater than a 50 percent change in ownership). The issuance of the Company’s Series A Preferred Stock on January 15, 2009 resulted in a change of control as defined under IRC 382.

Components of income taxes were as follows:

	For the Three Months Ended March 31,
	2019		2018

Federal	$	-	$	-
State		-		95,000
	$	-	$	95,000

The differences between the Company’s effective tax rate and the statutory federal rate were as follows:

	For the Three Months Ended March 31,
	2019			2018

U.S. statutory rate		21.0	%		21.0	%
State income taxes		8.0	%		8.0	%
Amortization/impairment of acquisition related assets		0.1	%		(0.1	)%
Stock based compensation		0.0	%		0.1	%
Other permanent differences		0.2	%		0.4	%
Valuation allowance		(29.3	)%		(20.1	)%
		0.0	%		9.3	%

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. The components of the net deferred tax assets for the periods ended March 31, 2019 and December 31, 2018 were as follows:

	March 31, 2019			December 31, 2018

Deferred tax assets:
Net operating loss carryforward	$	11,663,571		$	11,435,167
Depreciation		(10,414	)		(2,436	)
Compensation expense		53,804			53,804
Deferred revenue		449,500			449,500
Total deferred tax asset		12,156,461			11,936,035

Deferred tax liabilities		-			-
Net deferred tax asset		12,156,461			11,936,035
Less: valuation allowance		(12,156,461	)		(11,936,035	)
	$	-		$	-

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

NOTE 9 - INCOME TAXES (Continued)

The Company has fully reserved the deferred tax asset in excess of the deferred tax liabilities due to the limitation on taxable income that can be offset by net operating loss carry forwards in future periods under IRC section 382 as a result of changes in control and substantial uncertainty of the realization of any tax assets in future periods. The valuation allowance as of March 31, 2019 was increased by $220,426 as compared to December 31, 2018.

In 2018 the Company wrote off $28,900,000 of Florida state net operating loss carry forwards due to operations in Florida having previously ceased and due to management making the determination that operations would not resume in the state of Florida in future. As a result, the deferred tax asset and related valuation allowance were decreased by approximately $2,300,000.

On December 22, 2017 the Tax Cuts and Jobs Act (H.R. 1) was signed into law. This act includes, among other items, a permanent reduction to the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. The new bill reduced the blended tax rate for the Company from 38% to 29% in 2018. The change in the blended tax rate reduced the 2017 net operating loss carry forward deferred tax assets by approximately $4,407,232.

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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,”, “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.

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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 customers 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 2019 and 2018 include the allowance for doubtful accounts, stock-based compensation, the useful lives and valuation of property and equipment, valuation of deferred tax assets, and deferred revenue. Actual results may differ from these estimates under different assumptions or conditions.

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, on an ASP basis a client leases the InsPro Enterprise software, paying only for that capacity required to support their business. ASP and hosting customers access InsPro Enterprise installed on customers’ servers or on the Company’s servers located at a third party’s site.

The Company’s software maintenance fees apply to both licensed and ASP customers. 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 or post- implementation of InsPro Enterprise for either an ASP or licensed client. Implementation services include InsPro Enterprise installation, configuration and modification of InsPro Enterprise functionality, client insurance plan set-up, client insurance document design and system documentation. Post-implementation services include these same services to existing customers supporting their ongoing utilization of InsPro Enterprise.

The Company’s revenue is recognized under FASB ASC 606 Revenue from Contracts with Customers (“ASC 606”).

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Professional services consist of pre- and post-implementation services pertaining to InsPro Enterprise installation, configuration and modification of InsPro Enterprise functionality, client insurance plan set-up, client insurance document design and system documentation, training and data migration. Once these services are performed for a client they cannot be returned by the client to the Company and the Company cannot provide the same services to any other client without substantial rework needed to satisfy another client’s needs. We primarily invoice professional services revenue on a time and materials basis. Under ASC 606, we elect to apply the "right to invoice" practical expedient outlined in ASC 606-10-55-18. The invoice amount represents the number of hours of time worked by each worker multiplied by the contractual bill rate for the type of work billed. As such, the Company recognizes revenue in the amount for which it has the right to invoice. Revenue recognition is deemed to be consistent under both ASC 606 and the previous standard.

Sale of perpetual licenses 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. The Company also sells perpetual licenses for third party software and sells third party equipment to a client in connection with the client’s use of InsPro Enterprise software on hardware owned by the client. Prior to ASC 606 we recognized revenue on the sale of perpetual software licenses and sale of equipment when persuasive evidence of an arrangement exists, the software is delivered in accordance with all terms and conditions of the customer contracts (“Delivery Has Occurred”), the fee is fixed or determinable and collectability is probable. Historically the criteria Delivery Has Occurred has been the last criteria satisfied in terms of determining revenue recognition for sale of software licenses and sale of equipment. Therefore prior to ASC 606 we recognized the sale of software licenses and sale of equipment revenue when Delivery Has Occurred. Under ASC 606, we recognize the sale of software licenses and the sale of equipment revenue at the point in time when control has transferred to the client, which typically is when Delivery Has Occurred. Revenue recognition is deemed to be consistent under both ASC 606 and the previous standard.

ASP and hosting enables a client to effectively lease the InsPro Enterprise software, paying only for that capacity required to support their business during the contracted time period. The hosting service can also enable a client to outsource its application management of its perpetually licensed InsPro Enterprise software to the Company. ASP and hosting customers access InsPro Enterprise installed on InsPro Technologies owned servers. Maintenance enables a client to periodic updates to their InsPro Enterprise software and access to customer support from the Company. Prior to ASC 606 we recognized ASP and hosting and maintenance revenue based on contractually defined fixed fees over the contract period on a straight line basis. Under ASC 606, we have determined the Company’ continuous service and support represent a series of performance obligations that are delivered over time on a stand-ready basis. Revenue recognition is deemed to be consistent under both ASC 606 and the previous standard.

Effective August 18, 2015, the Company entered into a five year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated third party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective customers for their administration of long term care insurance products for an initial fee of $2,500,000 (the “Reseller Fee”). Pursuant to the Reseller Agreement, the Reseller Fee is fully or partially refundable to the Reseller in the event that the Company materially breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation or seeks protection under bankruptcy during the term of the Reseller Agreement. Prior to ASC 606 we recognized Reseller Fee revenue whenever a portion of the Reseller Fee was no longer subject to refund. Under ASC 606, the Company believes the contractual specific refund terms represent separate performance obligations over the duration of the Reseller Agreement, which the Reseller Agreement has contractually specified the prices for each separate performance deliverable. Revenue recognition is deemed to be consistent under both ASC 606 and the previous standard.

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

RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2019 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2018

Revenues

For the three months ended March 31, 2019 (“First Quarter 2019”) and for the three months ended March 31, 2018, (“First Quarter 2018”) our revenues include the following:

	For the Three Months Ended March 31,				Increase (Decrease)
	2019		2018		Dollars			Percentage

Professional services	$	1,172,625	$	3,770,341	$	(2,597,716	)		-68.9	%
ASP and hosting revenue		1,933,344		2,003,891		(70,547	)		-3.5	%
Maintenance revenue		491,921		382,518		109,403			28.6	%
Sale of equipment		-		23,797		(23,797	)		-100.0	%
Other revenue		3,710		7,200		(3,490	)		-48.5	%

Total	$	3,601,600	$	6,187,747	$	(2,586,147	)		-41.8	%

In First Quarter 2019 our professional services revenue decreased primarily as a result of lower implementation services provided to the Company’s largest client as measured by earned revenue in First Quarter 2018 partially offset by higher post-implementation services provided to the Company’s largest client as measured by earned revenue in First Quarter 2019. The Company has largely completed implementation services to our largest client in 2018. Implementation services included assisting customers in setting up their insurance products in InsPro Enterprise^TM, 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 customers supporting their ongoing utilization of InsPro Enterprise.

In First Quarter 2019 our ASP and hosting revenue decreased as a result of the loss of a client in the fourth quarter of 2018 partially offset by increased fees from several existing customers. ASP and 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 and hosting customers’ access InsPro Enterprise installed on customers’ servers or on the Company’s servers located at a third party’s site.

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In First Quarter 2019 our maintenance revenue increased primarily due to increased fees from several existing customers.

In First Quarter 2018 we sold computer equipment to a client in connection with their use of InsPro Enterprise.

In First Quarter 2019 other revenue decreased primarily due to lower renewal commissions received in connection with the Company’s former telesales call center and external agent produced agency business. In 2009 the Company ceased selling health and related products to individuals and families through its former non-employee agents.

Cost of Revenues

Our cost of revenues consisted of the following:

	For the Three Months Ended March 31,				Increase (Decrease)
	2019		2018		Dollars			Percentage

Compensation, employee benefits and related taxes	$	1,683,126	$	1,753,933	$	(70,807	)		-4.0	%
Professional fees		1,261,317		1,585,905		(324,588	)		-20.5	%
Depreciation		81,433		40,437		40,996			101.4	%
Rent, utilities, telephone and communications		103,463		93,198		10,265			11.0	%
Other cost of revenues		63,059		94,052		(30,993	)		-33.0	%

	$	3,192,398	$	3,567,525	$	(375,127	)		-10.5	%

In First Quarter 2019 our salaries, employee benefits and related taxes component of cost of revenues decreased as compared to First Quarter 2018 primarily as a result of lower bonus compensation.

In First Quarter 2019 our professional fees component of cost of revenues decreased as compared to First Quarter 2018 primarily as a result of decreased utilization of several outside consulting firms, which were assisting us with modifications to InsPro Enterprise’s functionality and a client’s implementation of InsPro Enterprise^TM, which was completed in 2018.

In First Quarter 2019 our depreciation expense component of cost of revenues increased as compared to First Quarter 2018 as a result of depreciation associated with the acquisition of certain third party perpetual licenses acquired in late 2018 and in First Quarter 2019, respectively.

In First Quarter 2019 our rent, utilities, telephone and communications component of cost of revenues increased as compared to First Quarter 2018 primarily due to a higher allocation of occupancy cost to cost of revenue and a lower allocation of cost to selling, general and administrative expense as a result of changes in employee staffing.

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In First Quarter 2019 our other cost component of cost of revenues decreased as compared to First Quarter 2018 primarily due to the cost of 3^rd party software resold in First Quarter 2018 and lower travel expense. Other cost of revenues consisted of the cost of 3^rd party licensed software resold to customers, equipment sold to customers, computer processing incurred primarily to provide ASP and 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 $409,202 in First Quarter 2019, as compared to a gross profit of $2,620,222 in First Quarter 2018. The results from operations in First Quarter 2019 were unfavorably impacted by lower professional services revenue.

Selling, General and Administrative Expenses

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

	For the Three Months Ended March 31,				Increase (Decrease)
	2019		2018		Dollars			Percentage

Compensation, employee benefits and related taxes	$	654,299	$	839,213	$	(184,914	)		-22.0	%
Advertising and other marketing		12,888		4,988		7,900			158.4	%
Depreciation		27,987		16,764		11,223			66.9	%
Rent, utilities, telephone and communications		35,920		39,460		(3,540	)		-9.0	%
Professional fees		101,941		159,543		(57,602	)		-36.1	%
Other general and administrative		302,022		530,286		(228,264	)		-43.0	%

	$	1,135,057	$	1,590,254	$	(455,197	)		-28.6	%

In First Quarter 2019 our salaries, employee benefits and related taxes decreased as compared to First Quarter 2018 primarily as a result of decreased employee staffing and lower bonus compensation.

In First Quarter 2019 our advertising and marketing expense increased primarily as a result of costs associated with Company’s new web site in First Quarter 2019.

In First Quarter 2019 our depreciation expense increased as compared to First Quarter 2018 as a result of depreciation associated with the acquisition of certain third party perpetual licenses acquired in late 2018 and in First Quarter 2019, respectively.

In First Quarter 2019 our professional fees decreased as compared to First Quarter 2018 primarily due to lower employee recruiting expenses.

In First Quarter 2019 our other general and administrative expenses decreased as compared to First Quarter 2018 primarily due $334,460 of bad debt expense associated with receivables from a single client in First Quarter 2018 partially offset by higher computer software subscription and maintenance expense entered into in early 2019.

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Operating (loss) income from operations before other expenses and income taxes

As a result of the aforementioned factors, we reported a loss from operations before income taxes of $725,855 in First Quarter 2019, as compared to income of $1,029,968 in First Quarter 2018.

Other expenses

In First Quarter 2019 our interest expense increased as compared to First Quarter 2018 primarily due interest on equipment loans, which originated in First Quarter 2019. Interest expense is attributable to interest on the equipment loans, finance leases and notes payable.

(Loss) income before income taxes

As a result of the aforementioned factors, we reported loss before income taxes of $751,283, in First Quarter 2019, as compared to income before income taxes of $1,023,744 in First Quarter 2018.

Income tax expense

In First Quarter 2019 our tax provision for income taxes was $0 as compared to $95,000 in First Quarter 2018, which consisted of Pennsylvania corporate income tax.

The effective tax rate for First Quarter 2019 differed from the U.S. federal and state statutory rates primarily due a 100% valuation allowance of deferred tax assets.

The effective tax rate for First Quarter 2018 differed from the U.S. federal statutory rate primarily due to net operating losses carried forward from prior years (“NOLs”), which offset 100% of current federal income tax expense. In computing the Company’s state corporate income tax in First Quarter 2018 the Company’s state NOL’s are limited to 35% of the Company’s state income tax.

Net (Loss) Income

As a result of these factors discussed above, we reported net loss of $751,283, or $0.02 per share on a basic and fully diluted basis, in First Quarter 2019, as compared to net income of $928,744, or $0.02 per share basic and $0.00 per share on a fully diluted basis in First Quarter 2018.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2019, we had a cash balance of $5,816,855 and working capital of $1,899,627.

Net cash provided by operations was $978,451 in First Quarter 2019 as compared to net cash used in operations of $370,559 in First Quarter 2018. Impacting our cash flow from operations was our net loss of $751,283 in First Quarter 2019 as compared to net income of $928,744 in First Quarter 2018 and:

Decrease in accounts receivable of $1,131,367 in First Quarter 2019, which is primarily the result of the collection of amounts billed in 2018 and decreased billings in First Quarter 2019 to the Company’s largest customer as measured by revenue in 2018.

Decrease in prepaid expenses of $170,637 in First Quarter 2019, which is primarily the result of amortization of prepaid insurance and software maintenance.

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Increase in deferred revenue of $471,138 in First Quarter 2019, which is primarily the result of annual maintenance fees, which have not yet been earned in First Quarter 2019.

Increase in deferred revenue of $471,138 in First Quarter 2019, which is primarily the result of annual maintenance fees, which were not yet earned in First Quarter 2019.

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 $109,420 and $57,201 in First Quarter 2019 and First Quarter 2018, respectively.

Recorded stock-based compensation expense of $1,250 and $2,349 in First Quarter 2019 and First Quarter 2018, respectively.

Change in allowance for doubtful collection of accounts receivable of $334,460 in First Quarter 2018.

Net cash used in investing activities in First Quarter 2019 was $93,451 as compared to $8,843 in First Quarter 2018. The increase is the result of the increased purchases of computer software and hardware.

Net cash used in financing activities in First Quarter 2019 was $168,821 as compared to $68,293 in First Quarter 2018.

Payments on equipment loans of $106,001 in the First Quarter of 2019 pertain to loans to finance the purchase of third party licenses, software subscriptions and software maintenance.

On January 5, 2019, InsPro LLC entered into a financing arrangement with an unaffiliated company. Payment terms include 36 equal monthly payments of principal, interest and applicable sales tax of $24,432 commencing on February 1, 2019 and ending on January 1, 2022.

On February 28, 2019, InsPro LLC entered into a financing arrangement with an unaffiliated company. Payment terms include 24 equal monthly payments of principal, interest of $51,456, which commenced in March, 2019 and will end on February 1, 2021.

Payments on notes payable pertain to notes payable, which we entered into in order to finance two of the Company’s corporate insurance premiums.

Payments on finance lease obligations pertain to leases to finance the purchase of equipment used for operations.

Off-Balance Sheet Arrangements

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

Liquidity and Other Considerations

During the three months ended March 31, 2019, the Company’s cash provided by operations was $978,451. As of March 31, 2019, the Company had $5,816,855 of cash, working capital of $1,899,627 and the Company’s shareholders’ equity was $2,199,014.

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management conducted an assessment of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on the results of such assessment, management has concluded that the our disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and is accumulated and communicated to management, including our principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

(b) Change in Internal Control over Financial Reporting.

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

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time we are involved in various investigations, claims and lawsuits arising in the normal conduct of our business, none of which, in our opinion, are material to our business. We cannot assume that we will prevail in any litigation. Regardless of the outcome, any litigation may require us to incur significant litigation expense and may result in significant diversion of our attention.

Item 6.

Exhibits

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

* Filed herewith.

† Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 15, 2019	INSPRO TECHNOLOGIES CORPORATION



	By:	/s/ ANTHONY R. VERDI
		Anthony R. Verdi
		President, Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Financial Officer)

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