XML 27 R16.htm IDEA: XBRL DOCUMENT

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2019

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 allowance for 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.

Accounts receivable and allowance for uncollectable accounts

The Company has a policy of establishing an allowance for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. At June 30, 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 June 30, 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.

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 filed its tax returns for the tax year ended December 31, 2018. As of June 30, 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.

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 June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Common stock		41,673,655		41,543,655		41,673,655		41,543,655
Exercisable options issued to purchase common stock		-		450,000		-		450,000
Conversion of series A convertible preferred stock issued and outstanding into common stock		25,405,000		25,535,000		25,405,000		25,535,000
Conversion of series B convertible preferred stock issued and outstanding into common stock		106,144,240		106,144,240		106,144,240		106,144,240
Conversion of series C convertible preferred stock issued and outstanding into common stock		25,083,500		25,083,500		25,083,500		25,083,500

Shares used in computing fully diluted net income (loss) per share		198,306,395		198,756,395		198,306,395		198,756,395

For the three and six months ended June 30, 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 and six months ended June 30, 2018, the effects of 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 June 30, 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 customer’s access InsPro Enterprise installed on customers servers or on the Company 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.

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 June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Compensation, employee benefits and related taxes	$	1,557,119	$	1,538,881	$	3,240,245	$	3,292,814
Professional fees		993,438		1,762,227		2,254,755		3,348,132
Depreciation		134,629		45,266		216,062		85,703
Rent, utilities, telephone and communications		104,604		103,007		208,067		196,205
Other cost of revenues		75,995		71,242		139,054		165,294
	$	2,865,785	$	3,520,623	$	6,058,183	$	7,088,148

Selling, general and administrative expenses

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

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019		2018			2019		2018
Compensation, employee benefits and related taxes	$	792,303	$	784,473		$	1,446,603	$	1,623,686
Advertising and other marketing		2,712		7,047			15,600		12,035
Depreciation		43,633		17,796			71,620		34,560
Rent, utilities, telephone and communications		37,650		42,343			73,570		81,803
Professional fees		159,734		115,243			261,675		274,786
Other general and administrative		225,846		(146,850	)		527,868		383,437
	$	1,261,878	$	820,052		$	2,396,936	$	2,410,307

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.

Concentrations of credit risk

The Company maintains its cash and restricted cash in bank deposit accounts, which exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation (“FDIC”). At June 30, 2019, the Company had $4,213,783 of cash in United States bank deposits, of which $500,000 was federally insured and $3,713,783 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.

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.

Registration rights agreements

At June 30, 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 June 30, 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 six months ended June 30, 2019, the Company’s net loss was $1,445,841 and cash used in operations was $486,995. As of June 30, 2019, the Company had $4,114,053 of cash, working capital of $1,113,825 and the Company’s shareholders’ equity was $1,429,456.

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.