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 September 30, 2016

OR

¨  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.)

150 North Radnor-Chester Rd.

Radnor Financial Center, Suite B101

Radnor, Pennsylvania 19087

(Address of Principal Executive Offices) (Zip Code)

(484) 654-2200

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

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

As of November 14, 2016, there were 41,543,655 outstanding shares of common stock, par value $0.001 per share, of the registrant.

INSPRO TECHNOLOGIES Corporation
Form 10-Q Quarterly Report
INDEX

PART I FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of September 30, 2016 (UNAUDITED) and December 31, 2015	3
	Consolidated Statements of Operations (UNAUDITED) for the three and nine months ended September 30, 2016 and 2015	4
	Consolidated Statements of Cash Flows (UNAUDITED) for the nine months ended September 30, 2016 and 2015	5
	Notes to UNAUDITED Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 4	Controls and Procedures	40
PART II OTHER INFORMATION
Item 1	Legal Proceedings	40
Item 6	Exhibits	40
	Signatures	41

Page 2

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2016			December 31, 2015
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	2,791,900		$	3,398,293
Accounts receivable, net		3,244,562			3,959,437
Prepaid expenses		279,630			179,700
Other current assets		42,758			4,954
Assets of discontinued operations		6,288			15,212
Total current assets		6,365,138			7,557,596
Property and equipment, net		635,518			747,937
Other assets		-			40,000
Total assets	$	7,000,656		$	8,345,533
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable	$	73,331		$	27,474
Accounts payable		4,750,794			5,410,146
Accrued expenses		482,234			497,088
Current portion of capital lease obligations		230,215			227,880
Deferred revenue		2,745,033			2,680,361
Total current liabilities		8,281,607			8,842,949
LONG TERM LIABILITIES:
Deferred revenue		1,500,000			2,000,000
Capital lease obligations		186,258			149,892
Total long term liabilities		1,686,258			2,149,892
Total liabilities		9,967,865			10,992,841
COMMITMENTS AND CONTINGENCIES:
SHAREHOLDERS' DEFICIT:
Preferred stock ($.001 par value; 20,000,000 shares authorized)
Series A convertible preferred stock; 3,437,500 shares authorized, 1,276,750 shares issued and outstanding (liquidation value $12,767,500)		2,864,104			2,864,104
Series B convertible preferred stock; 11,000,000 shares authorized, 5,307,212 and 5,305,852 shares issued and outstanding (liquidation value $15,921,636 and $15,917,556)		11,692,647			11,689,018
Common stock ($.001 par value; 500,000,000 shares authorized, 41,543,655 shares issued and outstanding)		41,543			41,543
Additional paid-in capital		48,246,041			46,742,784
Accumulated deficit		(65,811,544	)		(63,984,757	)
Total shareholders' deficit		(2,967,209	)		(2,647,308	)
Total liabilities and shareholders' deficit	$	7,000,656		$	8,345,533

See accompanying notes to unaudited consolidated financial statements.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues, net of $1,299,963 of stock based fees paid to a client during the quarter ended June 30, 2016	$	5,647,379		$	6,381,855		$	16,883,950		$	15,702,781
Cost of revenues		4,322,737			5,324,024			14,564,361			16,339,394
Gross profit (loss)		1,324,642			1,057,831			2,319,589			(636,613	)
Selling, general and administrative expenses		1,275,345			1,446,394			4,181,427			4,481,886
Operating gain (loss) from continuing operations		49,297			(388,563	)		(1,861,838	)		(5,118,499	)
Other income (expense):
Gain (loss) on the sale of equipment		-			(2,931	)		-			17,738
Interest expense		(7,831	)		(39,999	)		(18,290	)		(121,195	)
Total other income (expense)		(7,831	)		(42,930	)		(18,290	)		(103,457	)
Gain (loss) from continuing operations		41,466			(431,493	)		(1,880,128	)		(5,221,956	)
Income from discontinued operations		14,847			37,046			53,341			116,782
Net income (loss)	$	56,313		$	(394,447	)	$	(1,826,787	)	$	(5,105,174	)
Net income (loss) per common share - basic and diluted:
Income (loss) from operations	$	0.01		$	(0.04	)	$	(0.04	)	$	(0.12	)
Income from discontinued operations		-			-			-			-
Net income (loss) per common share	$	0.01		$	(0.04	)	$	(0.04	)	$	(0.12	)
Weighted average common shares outstanding - basic and diluted		41,543,655			41,543,655			41,543,655			41,543,655

See accompanying notes to unaudited consolidated financial statements.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine Months Ended September 30,
	2016			2015
	(Unaudited)			(Unaudited)
Cash Flows From Operating Activities:
Net loss	$	(1,826,787	)	$	(5,105,174	)
Less: income from discontinued operations		(53,341	)		(116,782	)
Loss from continuing operations		(1,880,128	)		(5,221,956	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		375,256			474,535
Stock-based compensation		202,843			433,473
Stock based fees paid to client as a reduction to revenue		1,299,963			-
(Gain) on the sale of used equipment		-			(17,738	)
Changes in assets and liabilities:
Accounts receivable		714,875			(4,287,860	)
Prepaid expenses		24,695			60,778
Other current assets		2,196			1,611
Accounts payable		(659,352	)		1,298,909
Accrued interest on secured note from related party		-			89,425
Accrued expenses		(14,854	)		155,632
Deferred revenue		(435,328	)		2,706,139
Net cash used in continuing operations		(369,834	)		(4,307,052	)
Net cash provided by discontinued operations		62,265			122,458
Net cash used in operating activities		(307,569	)		(4,184,594	)
Cash Flows From Investing Activities:
Purchase of property and equipment		(30,702	)		(129,188	)
Proceeds from the sale of equipment		-			79,053
Net cash used in investing activities		(30,702	)		(50,135	)
Cash Flows From Financing Activities:
Gross proceeds from sale of preferred stock and warrants		4,080			899,998
Payments on notes payable		(78,768	)		(487,478	)
Gross proceeds from secured note from related party		-			2,000,000
Gross proceeds loan payable to related party		-			500,000
Payments on capital leases		(193,434	)		(140,371	)
Net cash provided by (used in) financing activities		(268,122	)		2,772,149
Net (decrease) in cash		(606,393	)		(1,462,580	)
Cash - beginning of the period		3,398,293			3,431,001
Cash - end of the period	$	2,791,900		$	1,968,421
Supplemental Disclosures of Cash Flow Information
Cash payments for interest	$	18,290		$	31,770
Non cash investing and financing activities:
Acquisition of equipment acquired through capital leases	$	232,135		$	-
Accrued interest on loan payable	$	-		$	89,425
Fair value of warrant liability whose anti-dilution provisions expired during the period	$	-		$	5,760
Issuance of preferred stock and warrants valued at the amounts owed on secured notes plus accrued interest from related party and loan from related party	$	-		$	2,089,425

See accompanying notes to unaudited consolidated financial statements.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

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' clients include insurance carriers and third party administrators. The Company realizes revenue from the sale of software licenses, application service provider fees, hosting fees, software maintenance fees and consulting and implementation services.

Basis of presentation and principles of consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2015 and notes thereto and other pertinent information contained in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “Commission”).

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

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates in 2016 and 2015 include the allowance for doubtful accounts, stock-based compensation, the useful lives and valuation of property and equipment, and deferred revenue.

Cash and cash equivalents

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

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

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 September 30, 2016 and December 31, 2015, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $0 and $140,946, respectively.

Fair value of financial instruments

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and capital leases approximated fair value as of September 30, 2016 and December 31, 2015, 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

September 30, 2016

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

Income taxes

The Company accounts for income taxes pursuant to the provisions of FASB ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The Company follows the provisions of the ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

The Company has adopted FASB ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of September 30, 2016, the tax years ended December 31, 2015, 2014, 2013 and 2012 are still subject to audit.

Income (loss) per common share

Basic earnings per share is computed by dividing income (loss) from continuing operations by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the adjusted net income (loss) from operations for diluted earnings per share by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The effects of common stock equivalents and potentially dilutive securities outstanding during 2016 and 2015 are excluded from the calculation of diluted income (loss) per common share because it is anti-dilutive.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

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

The Company's common stock equivalents include the following:

	September 30, 2016		December 31, 2015
Series A convertible preferred stock issued and outstanding		25,535,000		25,535,000
Series B convertible preferred stock issued and outstanding		106,144,240		106,117,040
Options to purchase common stock issued and outstanding		4,000,000		2,975,000
Warrants to purchase common stock issued and outstanding		25,098,330		25,084,730
Warrants to purchase series A convertible preferred stock, issued and outstanding		7,600,000		7,600,000
Warrants to purchase series B convertible preferred stock, issued and outstanding		65,000,000		25,000,000
		233,377,570		192,311,770

Revenue recognition and deferred revenue

Revenues for nine months ended September 30, 2016, include a reduction in the amount of $1,299,963 for stock based fees paid to a client. See Note 6 - Stockholders’ Deficit – Series B Preferred Stock Warrants.

The Company offers InsPro Enterprise^TM on both a licensed and an ASP basis. An InsPro Enterprise software license entitles the purchaser a perpetual license to a copy of the InsPro Enterprise software installed at a single client location or hosted by InsPro Technologies. Alternatively, ASP hosting service enables a client to lease the InsPro Enterprise software, paying only for that capacity required to support their business. ASP and hosting clients access InsPro Enterprise installed on clients’ servers or on the Company’s servers located at a third party’s site.

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

The Company’s consulting and implementation services are generally associated with the implementation of InsPro Enterprise for either an ASP or licensed client, and cover such activity as InsPro Enterprise installation, configuration, modification of InsPro Enterprise functionality, client insurance plan set-up, client insurance document design and system documentation.

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

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

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

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

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

Effective August 18, 2015, the Company entered into a 5 year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated 3^rd party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective clients for their administration of long term care insurance products for an initial fee of $2,500,000 (the “Reseller Fee”). Pursuant to the Reseller Agreement, the Reseller Fee is fully or partially refundable to the Reseller in the event that the Company material breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation, seeks protection under bankruptcy, or materially breaches the Reseller Agreement during the term of the Reseller Agreement (each a “Refund Event”). The Reseller Fee was fully refundable if a Refund Event occurred before August 31, 2016. A Refund Event did not occur as of September 30, 2016, and as a result the Company recognized $500,000 of Reseller Fee as revenue in the three and nine months ended September 30, 2016. The Company shall refund the following amounts to the Reseller if a Refund Event occurs between the following dates; $2,000,000 between September 1, 2016 and August 31, 2017, $1,500,000 between September 1, 2017 and August 31, 2018, and $1,000,000 between September 1, 2018 and August 31, 2019. As of September 30, 2016 the Company has recorded the $2,000,000 Reseller Fee in deferred revenue ($500,000 included in short term liabilities and $1,500,000 included in long term liabilities).

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

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

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

Cost of revenues

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Compensation, employee benefits and related taxes	$	1,611,665	$	1,962,026	$	5,641,370	$	5,972,150
Professional fees		2,413,791		3,066,414		7,981,721		9,014,589
Depreciation		90,856		97,660		287,163		388,021
Rent, utilities, telephone and communications		102,784		126,378		338,117		359,334
Other cost of revenues		103,641		71,546		315,990		605,300
	$	4,322,737	$	5,324,024	$	14,564,361	$	16,339,394

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 September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Compensation, employee benefits and related taxes	$	755,185	$	851,593	$	2,561,625	$	2,551,107
Advertising and other marketing		43,022		22,986		92,476		114,635
Depreciation		30,786		21,967		88,093		86,514
Rent, utilities, telephone and communications		100,516		92,955		304,724		270,890
Professional fees		163,559		190,333		568,111		687,730
Other general and administrative		182,277		266,560		566,398		771,010
	$	1,275,345	$	1,446,394	$	4,181,427	$	4,481,886

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

September 30, 2016

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 September 30, 2016, the Company had $2,791,900 of cash in United States bank deposits, of which $500,946 was federally insured and $2,290,954 was not federally insured.

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

	September 30, 2016			December 31, 2015
Client #1		33	%		32	%
Client #2		15	%		17	%
Client #3		14	%		13	%
Client #4		-			11	%

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

	For the 9 Months Ended September 30,
	2016			2015
Client #1		25	%		24	%
Client #2		16	%		12	%
Client #3		15	%		-

Stock-based compensation

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

Non-employee stock based compensation

The cost of stock based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied.

Registration rights agreements

At September 30, 2016, 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 September 30, 2016. See Note 6 - Stockholders Deficit – Registration and Participation Rights.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

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

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by FASB, which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), that outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09 to the beginning of 2018 for public companies, with an option that would permit companies to adopt the standard as early as the original effective date of 2017. ASU 2014-09 may be adopted either retrospectively or on a modified retrospective basis whereby it would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for those contracts. We are currently evaluating the impacts of the adoption of ASU 2014-09 on our consolidated financial position, results from operations and related disclosures, along with the implementation approach to be used.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), that 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. ASU 2016-02 is effective for the Company at the beginning of fiscal year 2019 and early adoption is permitted. Entities must adopt ASU 2016-02 on a modified retrospective basis whereby it would be applied at the beginning of the earliest comparative year. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for the Company at the beginning of fiscal year 2019. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 2 – DISCONTINUED OPERATIONS

The Company has classified its former telesales call center and external agent produced agency business as discontinued operations. During the first quarter of 2009, the Company ceased the direct marketing and sale of health and life insurance and related products to individuals and families in its telesales call center. The Company also determined to discontinue selling health and life insurance and related products to individuals and families through its non-employee agents. On February 20, 2009, the Company entered into and completed the sale of its agency business to an unaffiliated third party, pursuant to the terms of a client transition agreement.

The financial position of discontinued operations was as follows:

	September 30, 2016		December 31, 2015
Accounts receivable	$	6,288	$	15,212
Net current assets of discontinued operations	$	6,288	$	15,212

The results of discontinued operations do not include any allocated or common overhead expenses. The results of operations of discontinued operations were as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Revenues:
Commission and other revenue from carriers	$	2,068	$	3,633	$	7,627	$	12,320
Transition policy commission pursuant to the Agreement		21,169		39,680		67,581		126,208
		23,237		43,313		75,208		138,528
Operating expenses:
Other general and administrative		8,390		6,267		21,867		21,745
		8,390		6,267		21,867		21,745
Income from discontinued operations	$	14,847	$	37,046	$	53,341	$	116,782

Page 14

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	Useful Life (Years)	September 30, 2016			December 31, 2015
Computer equipment and software	3	$	4,415,764		$	4,152,927
Office equipment	4.6		158,732			158,732
Office furniture and fixtures	6.7		189,857			189,857
Leasehold improvements	5.4		94,620			94,620
			4,858,973			4,596,136
Less accumulated depreciation			(4,223,455	)		(3,848,199	)
		$	635,518		$	747,937

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Depreciation included in cost of revenues	$	90,856	$	97,660	$	287,163	$	388,021
Depreciation included in selling, general and administrative		30,786		21,967		88,093		86,514
Total depreciation	$	121,642	$	119,627	$	375,256	$	474,535

NOTE 4 – NOTES PAYABLE

Notes payable at September 30, 2016, consist of two notes payable for insurance premium financing on two of the Company’s insurance policies. The first note commenced on April 28, 2016, has an annual interest rate of 8.75% and consists of 11 monthly payments of principal and interest of $7,456 per month commencing on May 28, 2016 and ending on March 28, 2017. The second note commenced on May 3, 2016, has an annual interest rate of 7.99% and consists of 11 monthly payments of principal and interest of $4,358 per month commencing on June 3, 2016 and ending on April 3, 2017.

Notes payable at December 31, 2015, consist of two notes payable for insurance premium financing on two of the Company’s insurance policies. The first note commenced on April 28, 2015, has an annual interest rate of 7.50% and consists of 11 monthly payments of principal and interest of $7,566 per month commencing on May 28, 2015 and ending on March 28, 2016. The second note commenced on May 3, 2015, has an annual interest rate of 7.99% and consists of 11 monthly payments of principal and interest of $4,396 per month commencing on June 3, 2015 and ending on April 3, 2016.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 5 – TRANSACTIONS AND LOANS FROM RELATED PARTIES

On January 30, 2015, the Company and InsPro Technologies issued a Secured Convertible Promissory Note (“Note”) to The Co-Investment Fund II L. P. (“Co-Investment”), pursuant to a Secured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”). In connection with the Note Purchase Agreement, the Company and InsPro Technologies, LLC (“InsPro LLC, and together with the Company, the “Borrowers”) and Co-Investment entered into a Security Agreement (the “Security Agreement”, and together with the Note and the Note Purchase Agreement, the “Financing Agreements”). Pursuant to the terms and subject to the conditions set forth in the Financing Agreements, Co-Investment provided a loan in the amount of $1,000,000 (“Loan”) to the Borrowers, which was secured by all assets of the Borrowers other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (collectively, the “Collateral”). Pursuant to the Note, interest in the amount of 8% per annum, calculated on a 365 or 366 day year, as the case may be, and the principal amount of $1,000,000 and accrued interest were paid on September 18, 2015. Co-Investment has the right to convert principal and accrued interest into the equity securities of the Company in the event that the Company issues and sells equity securities to investors on or before the repayment in full of the Note in an equity financing resulting in gross proceeds to the Company of at least $1,000,000.

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

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

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

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

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

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

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

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

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

Page 17

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 6 – STOCKHOLDERS’ DEFICIT

Common Stock

As of September 30, 2016 and December 31, 2015, the Company was authorized to issue 500,000,000 shares of common stock with a par value of $0.001 per share (“Common Stock”). As of September 30, 2016 and December 31, 2015, the Company had 41,543,655 shares of its Common Stock issued and outstanding. The Company has reserved shares of Common Stock, on an as-if-converted basis, as follows:

	September 30, 2016		December 31, 2015
Exercise of options issued and outstanding to purchase common stock		4,000,000		2,975,000
Issuance of common shares available under the 2010 Equity Compensation Plan		24,996,980		26,021,980
Exercise of warrants issued and outstanding to purchase common stock		25,098,330		25,084,730
Conversion of series A convertible preferred stock issued and outstanding into common stock		25,535,000		25,535,000
Exercise of warrants to purchase series A convertible preferred stock issued and outstanding and converted into common stock		7,600,000		7,600,000
Conversion of series B convertible preferred stock issued and outstanding into common stock		106,144,240		106,117,040
Exercise of warrants to purchase series B convertible preferred stock issued and outstanding and converted into common stock		65,000,000		25,000,000
Total common stock reserved for issuance		258,374,550		218,333,750

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

Series A Convertible Preferred Stock

As of September 30, 2016 and December 31, 2015, the Company was authorized to issue 3,437,500 shares of Series A Convertible Preferred Stock par value $0.001 per share (“Series A Preferred Stock”). As of September 30, 2016 and December 31, 2015, the Company had 1,276,750 shares of its Series A Preferred Stock issued and outstanding. As of September 30, 2016 and December 31, 2015, the Company has reserved 380,000 shares of Series A Preferred Stock for the exercise of warrants issued and outstanding to purchase its Series A Preferred Stock.

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

Upon the liquidation, sale or merger of the Company, each share of Series A Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to two and a half (2.5) times the Series A Preferred Stock original issue price, or $12,767,500, subject to certain customary adjustments, or (B) the amount such share of Series A Preferred Stock would receive if it participated pari passu with the holders of Common Stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series A Preferred Stock times $10.00. Each share of Series A Preferred Stock is convertible into 20 shares of Common Stock, subject to adjustment and at the option of the holder of the Series A Preferred Stock.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

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

Series B Convertible Preferred Stock

As of September 30, 2016 and December 31, 2015, the Company was authorized to issue 11,000,000 shares of Series B Convertible Preferred Stock par value $0.001 per share (“Series B Preferred Stock”). As of September 30, 2016 and December 31, 2015, the Company had 5,307,212 and 5,305,852 of its Series B Preferred Stock issued and outstanding, respectively. As of September 30, 2016 and December 31, 2015, the Company has reserved 3,250,000 and 1,250,000 shares of Series B Preferred Stock for the exercise of warrants issued and outstanding to purchase its Series B Preferred Stock, respectively.

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

As of September 30, 2016 and December 31, 2015, 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 and $15,917,556, respectively, subject to certain customary adjustments, or (B) the amount such share of Series B Preferred Stock would receive if it participated pari passu with the holders of Common Stock and preferred stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series B Preferred Stock times $3.00. Each share of Series B Preferred Stock 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 (Y) any amendment to the Company’s certificate of incorporation or bylaws that would adversely alter the voting powers, preferences or special rights of the Series B Preferred Stock or (Z) any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series B Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series B Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series B Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series B Preferred Stock with an amount per share equal the Series B Preferred Stock original issue price, or $15,921,636, in aggregate for all issued and outstanding Series B Preferred Stock.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

On February 2, 2016 the Company filed a registration statement for a rights offering on Form S-1/A, which the Commission declared effective on February 5, 2016, to distribute to shareholders excluding residents of Arizona and California at no charge, one non-transferable subscription right for each 16,615 shares of our Common Stock, 831 shares of our Series A Preferred Stock and 830 shares of our Series B Preferred Stock owned as of January 31, 2016 (the “Record Date”), either as a holder of record or, in the case of shares held of record by brokers, dealers, custodian banks, or other nominees on shareholders’ behalf, as a beneficial owner of such shares. If the rights offering was fully subscribed the gross proceeds from the rights offering would have been approximately $2.5 million. This rights offering was designed to give all of the holders of the Company’s capital stock the opportunity to participate in an equity investment in the Company on the same economic terms as the Private Placement.

The basic subscription right entitled the holder to purchase one unit (“Subscription Unit”) at a subscription price of $240. A Subscription Unit consisted of 80 shares of Series B Preferred Stock and a warrant to purchase 800 shares of Common Stock that expires on November 20, 2017 at an exercise price of $0.15 per share. In the event that a holder of a Subscription Unit purchased all of the basic Subscription Units available to the holder then pursuant to their basic subscription right, the holder had the option to choose to subscribe for a portion of any Subscription Units that were not purchased by all other holders of Subscription Units through the exercise of their basic subscription rights.

Effective with the expiration of the subscription rights, which occurred on March 14, 2016, holders of subscription rights exercised in aggregate 17 basic subscription rights and 0 over subscription rights for a total 17 Subscription Units. The Company received $4,080 in gross proceeds as a result of the exercise of Subscription Units. As a result of the exercise of 17 Subscription Units the Company issued effective on March 14, 2016 in aggregate 1,360 shares of Series B Preferred Stock and of warrants to purchase in aggregate 13,600 shares of Common Stock that expires on November 20, 2017 at an exercise price of $0.15 per share (the “2016 Warrants”). Effective with the expiration of the subscription rights all unexercised subscription rights expired.

The Company allocated $451 of the $4,080 proceeds received as a result of the rights offering, which represent the fair value of the 2016 Warrants, to additional paid in capital using a Black-Scholes option pricing model with the following assumptions: expected volatility of 259%, a risk-free interest rate of 0.51%, an expected term of 1.7 years and 0% dividend yield. The remaining $3,629 of the proceeds received was allocated to the Series B Preferred Stock.

Stock Options

On March 31, 2016, the Company granted two executives of the Company options to purchase a total of 1,000,000 shares of the Company’s Common Stock, which vest as follows: 250,000 shares of Common Stock on March 31 of each year from 2017 to 2020. Such options have a five year term and an exercise price of $0.10 per share, which exceeded the $0.04 closing price of one share of the Company’s Common Stock as quoted on the OTCBB on March 31, 2016. The fair value of the options granted was estimated on the date of the grant to be $40,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 724%, risk-free interest rate: 0.38%, expected life in years: 5 based on the contract life of the option grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to these options in salaries, commission and related taxes of $2,500 in the nine months ended September 30, 2016.

Page 20

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

On May 20, 2016, the Company granted to an executive of the Company options to purchase a total of 500,000 shares of the Company’s Common Stock, which vest as follows: 125,000 shares of Common Stock on May 20 of each year from 2017 to 2020. Such options have a five year term and an exercise price of $0.10 per share, which exceeded the $0.04 closing price of one share of the Company’s Common Stock as quoted on the OTCBB on May 20, 2016. The fair value of the options granted was estimated on the date of the grant to be $16,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 710%, risk-free interest rate: 0.32%, expected life in years: 5 based on the contract life of the option grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to these options in salaries, commission and related taxes of $666 in the nine months ended September 30, 2016.

During the nine months ended September 30, 2016, 475,000 options, which were previously granted to directors and a former employee of the Company, expired in accordance with the terms of such stock options.

As of September 30, 2016, there were 30,000,000 shares of our Common Stock authorized to be issued under the Company’s 2010 Equity Compensation Plan, of which 24,996,980 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 $202,843 for the nine months ended September 30, 2016, which included $55,463 of expense pertaining to stock options and $147,380 of expense pertaining to the amendment of warrants to purchase Series A Preferred Stock. See Note 6 – Stockholders Deficit – Series A Preferred Stock Warrants.

The value of equity compensation expense not yet expensed pertaining to unvested equity compensation for both options to purchase common stock and Series A Preferred Stock was $157,992 as of September 30, 2016, which will be recognized over a weighted average 2.6 years in the future.

A summary of the Company's outstanding stock options as of and for the nine months ended September 30, 2016 are as follows:

	Number			Weighted				Weighted
	Of Shares			Average		Weighted		Average		Aggregate
	Underlying			Exercise		Average		Remaining		Intrinsic
	Options			Price		Fair Value		Contractual Life		Value (1)
								(in years)
Outstanding at December 31, 2015		2,975,000		$	0.90	$	0.54		2.53	$	-
For the period ended September 30, 2016
Granted		1,500,000			0.10		0.04
Exercised		-			-		-
Expired		(475,000	)		3.58		2.94
Outstanding at September 30, 2016		4,000,000		$	0.10	$	0.06		-	$	-
Outstanding and exercisable at September 30, 2016		1,391,666		$	0.10	$	0.10		3.69	$	-

(1) The aggregate intrinsic value is based on the $0.08 closing price as of September 30, 2016 for the Company’s Common Stock.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

Common Stock Warrants

On March 14, 2016, the 2016 Warrants were issued in connection with the rights offering. See Note 6 – Stockholders Deficit – Series B Preferred Stock. The Company determined the 2016 Warrants qualify for a scope exception under ASC 815 as they were determined to be indexed to the Company’s stock.

Outstanding warrants at September 30, 2016 have an average weighted average remaining contractual life of 1.1 years. A summary of the status of the Company's outstanding common stock warrants as of and for the nine months ended September 30, 2016 are as follows:

			Weighted
	Common		Average
	Stock		Exercise
	Warrants		Price
Outstanding and exercisable at December 31, 2015		25,084,730	$	0.15
For the period ended September 30, 2016
Granted		13,600		0.15
Exercised		-		-
Expired		-		-
Outstanding and exercisable at September 30, 2016		25,098,330	$	0.15

Series A Preferred Stock Warrants

On March 31, 2016, the Company amended and restated a warrant to purchase a total of 150,000 shares of the Company’s Series A Preferred Stock originally granted to Mr. Robert J. Oakes on August 18, 2010, and also amended and restated a warrant to purchase a total of 150,000 shares of the Company’s Series A Preferred Stock originally granted to Mr. Anthony R. Verdi on September 14, 2011 (collectively the “Original Warrants”). Immediately prior to March 31, 2016, the Original Warrants had an expiration date of September 14, 2016 and the Original Warrants were amended and restated to have an expiration date of September 14, 2017 (as amended, the “Amended and Restated Warrants”). The Amended and Restated Warrants are fully exercisable and have an exercise price of $4.00 per share. The fair value of the amendment to the Amended and Restated Warrants was estimated on the date of the amendment to be the difference between the value of the Amended and Restated Warrants immediately before and after the change in the expiration date. The fair value of the Amended and Restated Warrants was estimated on the date of the amendment before the change in the expiration date to be $2,224 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 111%, risk-free interest rate: 0.38%, expected life in years: 0.5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. The fair value of the Amended and Restated Warrants was estimated on the date of the amendment after the change in the expiration date to be $149,605 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 263%, risk-free interest rate: 0.38%, expected life in years: 1.5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to the Amended and Restated Warrant in salaries, commission and related taxes of $147,380 in the nine months ended September 30, 2016.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

Outstanding warrants to purchase the Company’s Series A Preferred Stock at September 30, 2016 have a remaining contractual life of 1 year. A summary of the status of the Company's outstanding Series A Preferred Stock warrants as of and for the nine months ended September 30, 2016 are as follows:

			Weighted
	Preferred		Average
	Stock		Exercise
	Warrants		Price
Outstanding and exercisable at December 31, 2015		380,000	$	4.00
For the period ended September 30, 2016
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding and exercisable at September 30, 2016		380,000	$	4.00

Series B Preferred Stock Warrants

On April 4, 2016, the Company entered into an agreement with an existing client, which among other things, included a provision that the Company issue a warrant to the client to purchase 2,000,000 shares of the Company’s Series B Preferred Stock, which is immediately exercisable (the “2016 Series B Warrants”). The 2016 Series B Warrants have a three year term, a cashless exercise provision and an exercise price of $3.00 per share. On May 4, 2016 the Company issued the 2016 Series B Warrant to the client. The fair value of the 2016 Series B Warrants was estimated on April 4, 2016, which was the date of the agreement with the client, to be $1,299,963 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 503%, risk-free interest rate: 0.38%, expected life in years: 3 based on the contract life of the 2016 Series B Warrants, and assumed dividend yield: 0%. The Company determined the 2016 Series B Warrants qualify for a scope exception under ASC 815 as they were determined to be indexed to the Company’s stock. The Company recorded the fair value of the 2016 Series B Warrant as an increase to additional paid in capital and a reduction to revenue in the nine months ended September 30, 2016, in the amount of $1,299,963.

Outstanding preferred stock warrants to purchase the Company’s Series B Preferred Stock at September 30, 2016 have a remaining contractual life of 2.6 years. A summary of the status of the Company's outstanding Series B Preferred Stock warrants as of and for the nine months ended September 30, 2016 are as follows:

			Weighted
	Preferred		Average
	Stock		Exercise
	Warrants		Price
Outstanding and exercisable at December 31, 2015		1,250,000	$	3.00
For the period ended September 30, 2016
Granted		2,000,000		3.00
Exercised		-		-
Expired		-		-
Outstanding and exercisable at September 30, 2016		3,250,000	$	3.00

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 6 – STOCKHOLDERS’ DEFICIT (Continued)

Registration and Participation Rights

As of September 30, 2016, the Company has not received a demand notice in connection with any of the Company’s various registration rights agreements.

NOTE 7 – CAPITAL LEASE OBLIGATIONS

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

Property and equipment includes the following amounts for leases that have been capitalized as of September 30, 2016 and December 31, 2015:

		September 30, 2016			December 31, 2015
	Useful Life (Years)
Computer equipment and software	3	$	1,576,226		$	1,344,091
Phone System	3		15,011			15,011
			1,591,237			1,359,102
Less accumulated depreciation			(1,185,594	)		(990,007	)
		$	405,643		$	369,095

Future minimum payments required under capital leases at September 30, 2016 are as follows:

2016	$	80,961
2017		203,110
2018		130,693
2019		30,307
Total future payments		445,071
Less amount representing interest		28,598
Present value of future minimum payments		416,473
Less current portion		230,215
Long-term portion	$	186,258

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

NOTE 8 – DEFINED CONTRIBUTION 401(k) PLAN

The Company implemented a 401(k) plan on January 1, 2007. Eligible employees contribute to the 401(k) plan. Employees become eligible after attaining age 19 and after 6 months of employment with the Company. An employee may become a participant of the 401(k) plan on the first day of the month following the completion of the eligibility requirements. Effective January 1, 2007 the Company implemented an elective contribution to the plan of 25% of the employee’s contribution up to 4% of the employee’s compensation. The contributions are subject to a vesting schedule and become fully vested after one year of service, retirement, death or disability, whichever occurs first. The Company made contributions of $61,701 and $61,925 for the nine months ended September 30, 2016 and 2015, respectively.

NOTE 9 – COMMITTMENTS AND CONTINGENCIES

On July 7, 2006, the Company entered into a lease agreement with Radnor Properties-SDC, L.P. (the “Landlord”) for the lease of 7,414 square feet of office space located in Radnor Financial Center, Building B, 150 Radnor-Chester Road, Radnor, Pennsylvania. The term of the lease commenced on November 1, 2006, which was the date the Company, with the Landlord’s prior consent, assumed possession of the premises and the date the Landlord tendered possession of the premises to the Company following the substantial completion of the improvements required to be made by the Landlord under the lease agreement, and will expire on the last day of the 125^th month following the commencement of the lease term. The lease will expire on March 31, 2017, in accordance with the terms of the lease. The annual rent increases every 12 months, starting at approximately $161,592 plus a proportionate share of Landlord’s building expenses after the second month and ending at approximately $258,378 plus a proportionate share of Landlord’s building expenses. Under the terms of the lease agreement, rent was waived for the first five months of the lease term with respect to 5,238 square feet and for the first twelve months for the remaining 2,176 square feet. The Company recorded a liability for deferred rent in accrued liabilities in the amount of $15,128 as of September 30, 2016.

On September 14, 2007, InsPro LLC entered into a lease agreement (the “Lease Agreement”) with BPG Officer VI Baldwin Tower L.P. (“BPG”). On April 28, 2015, InsPro LLC and BPG entered into a fifth amendment to the Lease Agreement whereby InsPro LLC and BPG agreed to amend the Lease Agreement to increase the leased office space by 6,801 rentable square feet effective April 1, 2015, through March 31, 2016, at an incremental monthly rent of $10,000. On June 9, 2016, InsPro LLC and BPG entered into a sixth amendment to the Lease Agreement whereby InsPro LLC and BPG agreed to amend the Lease Agreement to extend the term through January 31, 2018 for 17,567 of rentable square feet at a monthly cost of $28,546 for the period February 1, 2017 through January 31, 2018.

Future minimum payments required under operating leases and service agreements at September 30, 2016 are as follows:

2016	$	205,490
2017		522,274
2018		29,398
2019		-
thereafter		-
Total	$	757,162

The Company leases certain real and personal property under non-cancelable operating leases. Rent expense was $140,393 and $172,496 for the three months ended September 30, 2016 and 2015, respectively. Rent expense was $470,960 and $488,977 for the nine months ended September 30, 2016 and 2015, respectively.

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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,” “anticipate,” “estimate,” “believe,” “continue” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. While we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and projections of the future about which we cannot be certain. Many factors, including general business and economic conditions affect our ability to achieve our objectives. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. In addition, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, if at all. We may not update these forward-looking statements, even though our situation may change in the future.

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

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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 clients include health insurance carriers and third party administrators. We market InsPro Enterprise as a licensed software application, and we realize revenue from license fees, application service provider fees, software maintenance fees and professional services.

Critical Accounting Policies

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

Use of Estimates - Management's Discussion and Analysis is based upon the Company’s consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates in 2016 and 2015 include the warrant liability, allowance for doubtful accounts, stock-based compensation, the useful lives and valuation of property and equipment, and deferred revenue. Actual results may differ from these estimates under different assumptions or conditions.

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

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

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

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

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

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

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

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

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RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2016 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2015

Revenues

For the three months ended September 30, 2016 (“Third Quarter 2016”) and for the three months ended September 30, 2015 (“Third Quarter 2015”) our revenues include the following:

	For the Three Months Ended September 30,				Increase (Decrease)
	2016		2015		Dollars			Percentage
Professional services, gross	$	3,091,399	$	4,191,989	$	(1,100,590	)		-26.3	%
ASP revenue		1,611,466		1,721,272		(109,806	)		-6.4	%
Maintenance revenue		426,514		450,594		(24,080	)		-5.3	%
Reseller fee revenue		500,000		-		500,000			100.0	%
Sub-leasing and other revenue		18,000		18,000		-			0.0	%
Total	$	5,647,379	$	6,381,855	$	(734,476	)		-11.5	%

· In Third Quarter 2016 our professional services revenue, gross decreased primarily as a result of lower implementation services to the Company’s largest client and lower implementation services to a client implemented in 2015. Implementation services included assisting clients in setting up their insurance products in InsPro EnterpriseTM, providing modifications to InsPro Enterprise’s functionality to support the client’s business, interfacing InsPro Enterprise with the client’s other systems, automation of client correspondence to their customers and data conversion from the client’s existing systems to InsPro Enterprise. Post implementation services include these same services to existing clients supporting their ongoing utilization of InsPro Enterprise.

· In Third Quarter 2016 our ASP revenue decreased primarily as a result of decreased fees from a client’s implementation of InsPro Enterprise in 2015, which included $180,000 of fees for services that were provided to the client prior to Third Quarter 2015 but earned in Third Quarter 2015, partially offset by increased fees from an existing client’s increased utilization of InsPro Enterprise. ASP hosting service enables a client to either lease InsPro Enterprise software, paying only for that capacity required to support their business, or for a client to outsource the operation of their licensed InsPro Enterprise installation to the Company. ASP hosting clients access InsPro Enterprise installed on clients’ servers or on the Company’s servers located at a third party’s site.

· In Third Quarter 2016 our maintenance revenue decreased as a result of a client that terminated its use of InsPro Enterprise in the first half of 2016.

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· In Third Quarter 2016 we earned $500,000 of reseller fee revenue. Effective August 18, 2015, the Company entered into a 5 year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated 3^rd party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective clients for their administration of long term care insurance products for an initial fee of $2,500,000 (the “Reseller Fee”). Pursuant to the Reseller Agreement, the Reseller Fee is fully or partially refundable to the Reseller in the event that the Company material breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation, seeks protection under bankruptcy, or materially breaches the Reseller Agreement during the term of the Reseller Agreement (each a “Refund Event”). The Reseller Fee was fully refundable if a Refund Event occurred before August 31, 2016. A Refund Event did not occur as of September 30, 2016, and as a result the Company recognized $500,000 of Reseller Fee as revenue in Third Quarter 2016. The Company shall refund the following amounts to the Reseller if a Refund Event occurs between the following dates; $2,000,000 between September 1, 2016 and August 31, 2017, $1,500,000 between September 1, 2017 and August 31, 2018, and $1,000,000 between September 1, 2018 and August 31, 2019.

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

Cost of Revenues

Our cost of revenues consisted of the following:

	For the Three Months Ended September 30,				Increase (Decrease)
	2016		2015		Dollars			Percentage
Compensation, employee benefits and related taxes	$	1,611,665	$	1,962,026	$	(350,361	)		-17.9	%
Professional fees		2,413,791		3,066,414		(652,623	)		-21.3	%
Depreciation		90,856		97,660		(6,804	)		-7.0	%
Rent, utilities, telephone and communications		102,784		126,378		(23,594	)		-18.7	%
Other cost of revenues		103,641		71,546		32,095			44.9	%
	$	4,322,737	$	5,324,024	$	(1,001,287	)		-18.8	%

· In Third Quarter 2016 our salaries, employee benefits and related taxes component of cost of revenues decreased as compared to Third Quarter 2015 primarily as a result of decreased employee staffing.

· In Third Quarter 2016 our professional fees component of cost of revenues decreased as compared to Third Quarter 2015 as a result of decreased utilization of several outside consulting firms, which were assisting us with modifications to InsPro Enterprise’s functionality and new clients’ implementations of InsPro Enterprise^TM, combined with decreased recruiting expenses.

· In Third Quarter 2016 our depreciation expense component of cost of revenues decreased as compared to Third Quarter 2015 as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for such assets.

· In Third Quarter 2016 our rent, utilities, telephone and communications component of cost of revenues increased as compared to Third Quarter 2015 primarily due to lower expenses pertaining to our Eddystone office.

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· In Third Quarter 2016 our other cost of revenues component of cost of revenues increased as compared to Third Quarter 2015 primarily due to increased computer equipment and software costs. Other cost of revenues consisted of the cost of 3^rd party licensed software resold to clients, equipment sold to clients, computer processing incurred primarily to provide ASP hosting services, hardware and software, travel and entertainment, and office expenses.

Gross Profit

As a result of the aforementioned factors, we reported a gross profit of $1,324,642 in Third Quarter 2016, as compared to a gross profit of $1,057,831 in Third Quarter 2015. The results from operations in Third Quarter 2016 were favorably impacted by $500,000 of reseller fee revenue in Third Quarter 2016.

Selling, General and Administrative Expenses

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

	For the Three Months Ended September 30,				Increase (Decrease)
	2016		2015		Dollars			Percentage
Compensation, employee benefits and related taxes	$	755,185	$	851,593	$	(96,407	)		-11.3	%
Advertising and other marketing		43,022		22,986		20,036			87.2	%
Depreciation		30,786		21,967		8,819			40.1	%
Rent, utilities, telephone and communications		100,516		92,955		7,561			8.1	%
Professional fees		163,559		190,333		(26,774	)		-14.1	%
Other general and administrative		182,277		266,560		(84,283	)		-31.6	%
	$	1,275,345	$	1,446,394	$	(171,048	)		-11.8	%

· In Third Quarter 2016 our salaries, employee benefits and related taxes decreased as compared to Third Quarter 2015 primarily due to lower equity based compensation partially offset by higher paid compensation to employees.

· In Third Quarter 2016 our advertising and other marketing expenses increased as compared to Third Quarter 2015 primarily as a result of increased marketing activities.

· In Third Quarter 2016 our depreciation expense increased as compared to Third Quarter 2015 as a result of a greater percentage allocated to selling, general and administrative expense and a lesser percentage of depreciation allocated to cost of revenues.

· In Third Quarter 2016 our rent, utilities, telephone and communications expense increased as compared to Third Quarter 2015 as a result of a lesser percentage of expense allocated to cost of revenues and a greater percentage allocated to selling, general and administrative expense.

· In Third Quarter 2016 our professional fees decreased as compared to Third Quarter 2015 primarily due to lower IT consulting expenses and lower employee recruiting expenses.

· In Third Quarter 2016 our other general and administrative expenses decreased as compared to Third Quarter 2015 primarily due to lower computer processing expense.

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Operating loss from continuing operations

As a result of the aforementioned factors, we reported a gain from continuing operations of $49,297 in Third Quarter 2016, as compared to a loss of $388,563 in Third Quarter 2015.

Other income (expenses)

Interest expense decreased in the Third Quarter 2016 as compared to the in the Third Quarter 2015 primarily due to the Company’s loans with The Co-Investment Fund II, L. P. (“Co-Investment”), which were repaid subsequent to the Third Quarter 2015, and repayment of a loan from Silicon Valley Bank (“SVB”), which was repaid in the Third Quarter 2015. Interest expense is attributable to interest on the Company’s loans with Co-Investment, SVB, capital leases and note payable for premium financing on a portion of the Company’s insurance coverages.

Gain on discontinued operations

Results from discontinued operations consisted of the following:

	For the Three Months Ended September 30,				Increase (Decrease)
	2016		2015		Dollars			Percentage
Revenues:
Commission and other revenue from carriers	$	2,068	$	3,633	$	(1,565	)		-43.1	%
eHealth Agreement		21,169		39,680		(18,511	)		-46.7	%
		23,237		43,313		(20,076	)		-46.4	%
Operating expenses:
Other general and administrative		8,390		6,267		2,123			33.9	%
		8,390		6,267		2,123			33.9	%
Income from discontinued operations	$	14,847	$	37,046	$	(22,199	)		-59.9	%

Revenues and income from discontinued operations in the Third Quarter 2016 decreased as compared to the Third Quarter 2015 due to the declines in our discontinued telesales call center produced agency business. We reported a gain from discontinued operations of $0 per share in Third Quarter 2016 and Third Quarter 2015.

On February 20, 2009, the Company entered into and completed the sale of its agency business to eHealth Insurance Services, Inc. The Company earns renewal commissions from certain insurance companies and a transition policy commission pursuant to a client transition agreement with eHealth Insurance Services, Inc.

Net loss

As a result of these factors discussed above, we reported net income of $56,313, or $0.01 net income per share, in Third Quarter 2016, as compared to a net loss of $394,447, or $0.04 net loss per share in Third Quarter 2015.

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RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2016 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2015

Revenues

For the nine months ended September 30, 2016 (“2016 To Date”) and for the nine months ended September 30, 2015 (“2015 To Date”) our revenues include the following:

	For the Nine Months Ended September 30,					Increase (Decrease)
	2016			2015		Dollars			Percentage
Professional services, gross	$	11,153,896		$	8,551,364	$	2,602,532			30.4	%
Stock-based fees paid to client		(1,299,963	)		-		(1,299,963	)		-100.0	%
ASP revenue		5,121,087			4,711,275		409,812			8.7	%
Sales of software licenses		10,000			1,036,624		(1,026,624	)		-99.0	%
Maintenance revenue		1,324,774			1,349,329		(24,555	)		-1.8	%
Reseller fee revenue		500,000			-		500,000			100.0	%
Sale of equipment		20,126			-		20,126			100.0	%
Sub-leasing and other revenue		54,030			54,189		(159	)		-0.3	%
Total	$	16,883,950		$	15,702,781	$	1,181,169			7.5	%

· In 2016 To Date our professional services revenue, gross increased as a result of higher billable implementation and post implementation services. Implementation services included assisting clients 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 clients supporting their ongoing utilization of InsPro Enterprise.

· On April 4, 2016, the Company entered into an agreement with an existing client, which among other things, included a provision that the Company issue within 30 days to the client a warrant to purchase in aggregate a total of 2,000,000 shares of the Company’s Series B Preferred Stock, which is immediately exercisable (the “2016 Series B Warrants”). The 2016 Series B Warrants have a three year term, a cashless exercise provision and an exercise price of $3.00 per share. On May 4, 2016 the Company issued the 2016 Series B Warrant to the client. The fair value of the 2016 Series B Warrants was estimated on April 4, 2016, which was the date of the agreement with the client, to be $1,299,963 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 503%, risk-free interest rate: 0.38%, expected life in years: 3 based on the contract life of the 2016 Series B Warrants, and assumed dividend yield: 0%.

· In 2016 To Date our ASP revenue increased primarily as a result of increased fees from an existing client’s increased utilization of InsPro Enterprise. ASP hosting service enables a client to either lease InsPro Enterprise software, paying only for that capacity required to support their business, or for a client to outsource the operation of their licensed InsPro Enterprise installation to the Company. ASP hosting clients access InsPro Enterprise installed on clients’ servers or on the Company’s servers located at a third party’s site.

· In 2016 To Date we earned $10,000 of license fee revenue, which included the resale of third party software to an InsPro Enterprise client. In 2015 To Date we earned $1,036,624 of license fee revenue, which included an $850,000 license fee for InsPro Enterprise recognized for a client that was implemented in 2015 To Date and the re-sale of third party software licenses to clients in the process of implementing InsPro Enterprise.

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· In 2016 To Date we earned $500,000 of reseller fee revenue pertaining to the Reseller Agreement with the Reseller whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective clients for their administration of long term care insurance products for Reseller Fee of $2,500,000. The Reseller Fee was fully refundable if a Refund Event occurred before August 31, 2016. A Refund Event did not occur as of September 30, 2016, and as a result the Company recognized $500,000 of Reseller Fee as revenue 2016 To Date. The Company shall refund the following amounts to the Reseller if a Refund Event occurs between the following dates; $2,000,000 between September 1, 2016 and August 31, 2017, $1,500,000 between September 1, 2017 and August 31, 2018, and $1,000,000 between September 1, 2018 and August 31, 2019.

· In 2016 To Date we earned $20,126 on the sale of third party equipment to an InsPro Enterprise client.

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

Cost of Revenues

Our cost of revenues consisted of the following:

	For the Nine Months Ended September 30,				Increase (Decrease)
	2016		2015		Dollars			Percentage
Compensation, employee benefits and related taxes	$	5,641,370	$	5,972,150	$	(330,780	)		-5.5	%
Professional fees		7,981,721		9,014,589		(1,032,868	)		-11.5	%
Depreciation		287,163		388,021		(100,858	)		-26.0	%
Rent, utilities, telephone and communications		338,117		359,334		(21,217	)		-5.9	%
Other cost of revenues		315,990		605,300		(289,310	)		-47.8	%
	$	14,564,361	$	16,339,394	$	(1,775,033	)		-10.9	%

· In 2016 To Date our salaries, employee benefits and related taxes component of cost of revenues decreased as compared to 2015 to Date primarily as a result of decreased employee staffing.

· In 2016 To Date our professional fees component of cost of revenues decreased as compared to 2015 To Date as a result of decreased utilization of several outside consulting firms, which were assisting us with modifications to InsPro Enterprise’s functionality and new clients’ implementations of InsPro Enterprise^™.

· In 2016 To Date our depreciation expense component of cost of revenues decreased as compared to 2015 To Date. Depreciation expense decreased as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for these assets.

· In 2016 To Date our rent, utilities, telephone and communications component of cost of revenues decreased as compared to 2015 To Date primarily due to a lesser percentage allocated to cost of revenues and a larger percentage of cost allocated to selling, general and administrative expense in 2016 as compared to 2015.

· In 2016 To Date our other cost of revenues component of cost of revenues decreased as compared to 2015 To Date. The decrease was primarily the result of $177,675 of the cost of 3^rd party licensed software resold to two clients in 2015 To Date and decreased travel and lodging costs associated with multiple implementations of InsPro Enterprise in 2015 To Date . Other cost of revenues consisted of the cost of 3^rd party licensed software and equipment resold to clients, computer processing incurred primarily to provide ASP hosting services, hardware and software, travel and entertainment, and office expenses.

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Gross (Loss) Profit

As a result of the aforementioned factors, we reported a gross profit of $2,319,589 in 2016 To Date, as compared to a gross loss of $636,613 in 2015 To Date. The results from operations in 2016 To Date were favorably impacted by higher revenues combined with lower cost of revenues, which is primarily a result of the lower utilization of several outside consulting firms, to assist with modifications to InsPro Enterprise’s functionality and new clients’ implementations of InsPro Enterprise™.

Selling, General and Administrative Expenses

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

	For the Nine Months Ended September 30,				Increase (Decrease)
	2016		2015		Dollars			Percentage
Compensation, employee benefits and related taxes	$	2,561,625	$	2,551,107	$	10,518			0.4	%
Advertising and other marketing		92,476		114,635		(22,159	)		-19.3	%
Depreciation		88,093		86,514		1,579			1.8	%
Rent, utilities, telephone and communications		304,724		270,890		33,834			12.5	%
Professional fees		568,111		687,730		(119,619	)		-17.4	%
Other general and administrative		566,398		771,010		(204,612	)		-26.5	%
	$	4,181,427	$	4,481,886	$	(300,459	)		-6.7	%

· In 2016 To Date our advertising and other marketing expenses decreased as compared to 2015 To Date primarily as a result of reduced marketing activities

.

· In 2016 To Date rent, utilities, telephone and commissions increased as compared to 2015 To Date primarily due to a larger percentage of cost allocated to selling, general and administrative expense and a lesser percentage allocated to cost of revenues in 2016 as compared to 2015 and higher expenses pertaining to our Eddystone office.

· In 2016 To Date professional fees decreased as compared to 2015 To Date primarily due to royalty expense incurred to an outside consulting firm in the 2015 To Date partially offset by higher legal costs in 2016 To Date incurred in connection with the Company’s rights offering in the first quarter of 2016.

· In 2016 To Date our other general and administrative expenses decreased as compared to 2015 To Date. The decrease is primarily the result of lower allowance for doubtful collection of accounts receivable expense.

Operating loss from continuing operations

As a result of the aforementioned factors, we reported a loss from continuing operations of $1,861,838 in 2016 To Date, as compared to $5,118,499 in 2015 To Date.

Page 35

Other income (expenses)

Interest expense decreased in the 2016 To Date as compared to 2015 to Date primarily due to the Company’s loans with Co-Investment, which were repaid subsequent to June 30, 2015, and repayment of a loan from SVB, which was repaid in. Interest expense is attributable to interest on the Company’s loans with Co-Investment, SVB, capital leases and note payable for premium financing on a portion of the Company’s insurance coverages.

Gain on discontinued operations

Results from discontinued operations were as follows:

	For the Nine Months Ended September 30,				Increase (Decrease)
	2016		2015		Dollars			Percentage
Revenues:
Commission and other revenue from carriers	$	7,627	$	12,320	$	(4,693	)		-38.1	%
Transition policy commission pursuant to the Agreement		67,581		126,208		(58,627	)		-46.5	%
		75,208		138,528		(63,320	)		-45.7	%
Operating expenses:
Other general and administrative		21,867		21,745		122			0.6	%
		21,867		21,745		122			0.6	%
Income from discontinued operations	$	53,341	$	116,782	$	(63,442	)		-54.3	%

Revenues and income from discontinued operations in 2016 To Date decreased as compared to 2015 to Date due to declines in our discontinued telesales call center produced agency business. We reported a gain from discontinued operations of $0 per share in 2016 To Date and 2015 to Date.

On February 20, 2009, the Company entered into and completed the sale of its agency business to eHealth Insurance Services, Inc. The Company earns renewal commissions from certain insurance companies and a transition policy commission pursuant to a client transition agreement with eHealth Insurance Services, Inc.

Net loss

As a result of these factors discussed above, we reported a net loss of $1,826,787, or $0.04 net loss per share, in 2016 To Date as compared to a net loss of $5,105,174, or $0.12 net loss per share in 2015 To Date.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2016, we had a cash balance of $2,791,900 and a working capital deficit of ($1,916,469).

Net cash used by operations was $307,569 in 2016 To Date as compared to $4,184,594 in 2015 To Date. Impacting our cash flow from operations was our net loss of $1,826,787 in 2016 To Date as compared to our net loss of $5,105,174 in 2015 To Date and:

· Decreases in accounts receivable of $714,875 in 2016 To Date, which is primarily the result of increased collections from clients primarily for professional services.

Page 36

· Decreases in accounts payable of $659,352 in 2016 To Date, which is primarily the result of payments of billed costs to outside IT consulting firms.

· Decreases in deferred revenue of $435,328 in 2016 To Date, which is primarily the result of $500,000 of Reseller fees collected in 2015 and earned in Third Quarter 2016.

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 $375,256 and $474,535 in 2016 To Date and 2015 To Date, respectively.

· Recorded stock-based compensation expense of $202,843 and $433,473 in 2016 To Date and 2015 To Date, respectively.

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

· Recorded gain on the sale of used equipment of $17,738 in 2015 To Date.

Net cash used by investing activities in 2016 To Date was $30,702 as compared to $50,135 in 2015 To Date.

Net cash used in financing activities in 2016 To Date was $268,122 as compared to cash provided by financing activities of $2,772,149 in 2015 To Date.

· On February 2, 2016 the Company filed a registration statement for a rights offering on Form S-1/A, which the Commission declared effective on February 5, 2016, to distribute to shareholders excluding residents of Arizona and California at no charge, one non-transferable subscription right for each 16,615 shares of our Common Stock, 831 shares of our Series A Preferred Stock and 830 shares of our Series B Preferred Stock owned as of January 31, 2016 (the “Record Date”), either as a holder of record or, in the case of shares held of record by brokers, dealers, custodian banks, or other nominees on shareholders’ behalf, as a beneficial owner of such shares. The basic subscription right entitled the holder to purchase one unit (“Subscription Unit”) at a subscription price of $240. A Subscription Unit consisted of 80 shares of Series B Preferred Stock and a warrant to purchase 800 shares of Common Stock that expires on November 20, 2017 at an exercise price of $0.15 per share. Effective with the expiration of the subscription rights, which occurred on March 14, 2016, holders of subscription rights exercised in aggregate 17 basic subscription rights and 0 over subscription rights for a total 17 Subscription Units. The Company received $4,080 in gross proceeds as a result of the exercise of Subscription Units. As a result of the exercise of 17 Subscription Units the Company issued effective on March 14, 2016 in aggregate 1,360 shares of Series B Preferred Stock and warrants to purchase in aggregate 13,600 shares of Common Stock that expires on November 20, 2017 at an exercise price of $0.15 per share (the “2016 Warrants”). Effective with the expiration of the subscription rights all unexercised subscription rights expired.

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

Page 37

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

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

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

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

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

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

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

· Payments on notes payable pertain to repayment of the borrowed amount under the Loan Agreement with SVB in 2015 and notes payable, which we entered into in order to finance two of the Company’s corporate insurance premiums.

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

Page 38

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.

Page 39

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

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

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

(b) Change in Internal Control over Financial Reporting.

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

PART II.

OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 6. Exhibits

Exhibit No.	Description
31.1	Chief Executive Officer’s Rule 13a-14(a)/15d-14(a) Certification *
31.2	Chief Financial Officer’s Rule 13a-14(a)/15d-14(a) Certification *
32.1	Chief Executive Officer’s Section 1350 Certification †
32.2	Chief Financial Officer’s Section 1350 Certification †

* Filed herewith.

† Furnished herewith.

Page 40

SIGNATURES

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

Date: November 14, 2016	INSPRO TECHNOLOGIES CORPORATION
	By:	/s/ ANTHONY R. VERDI
		Anthony R. Verdi
		Chief Financial Officer
		(Principal Financial Officer)

Page 41

EXHIBIT INDEX

Exhibit No.	Description
31.1	Principal Executive Officer’s Rule 13a-14(a)/15d-14(a) Certification *
31.2	Chief Financial Officer’s Rule 13a-14(a)/15d-14(a) Certification *
32.1	Principal Executive Officer’s Section 1350 Certification †
32.2	Chief Financial Officer’s Section 1350 Certification †

* Filed herewith.

† Furnished herewith.

Page 42

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER OF INSPRO TECHNOLOGIES CORPORATION REQUIRED BY RULE 13a-14(a) UNDER THE EXCHANGE ACT

I, Donald R. Caldwell, certify that:

(1) I have reviewed this Quarterly Report on Form 10-Q of InsPro Technologies Corporation;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f), and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2016

/s/ DONALD R. CALDWELL

Donald R. Caldwell

Principal Executive Officer and Chairman of the Board of Directors

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF INSPRO TECHNOLOGIES CORPORATION REQUIRED BY RULE 13a-14(a) UNDER THE EXCHANGE ACT

I, Anthony R. Verdi, certify that:

(1) I have reviewed this Quarterly Report on Form 10-Q of InsPro Technologies Corporation;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f), and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

c) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2016

/s/ ANTHONY R. VERDI

Anthony R. Verdi

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

OF INSPRO TECHNOLOGIES CORPORATION REQUIRED

BY RULE 13a-14(b) UNDER THE EXCHANGE ACT

In connection with the Quarterly Report of InsPro Technologies Corporation (the "Company") on Form 10-Q for the fiscal quarter ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald R. Caldwell, Chief Executive Officer of the Company, certify that, based on my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 14, 2016

/s/ DONALD R. CALDWELL

Donald R. Caldwell

Principal Executive Officer and Chairman of the Board of Directors

EX-32.2

Exhibit 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

OF INSPRO TECHNOLOGIES CORPORATION REQUIRED

BY RULE 13a-14(b) UNDER THE EXCHANGE ACT

In connection with the Quarterly Report of InsPro Technologies Corporation (the "Company") on Form 10-Q for the fiscal quarter ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Anthony R. Verdi, Chief Financial Officer of the Company, certify, based on my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 14, 2016

/s/ ANTHONY R. VERDI

Anthony R. Verdi

Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 14, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	InsPro Technologies Corp
Entity Central Index Key	0001309442
Trading Symbol	itcc
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		41,543,655
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2016	Dec. 31, 2015
CURRENT ASSETS:
Cash	$ 2,791,900	$ 3,398,293
Accounts receivable, net	3,244,562	3,959,437
Prepaid expenses	279,630	179,700
Other current assets	42,758	4,954
Assets of discontinued operations	6,288	15,212
Total current assets	6,365,138	7,557,596
Property and equipment, net	635,518	747,937
Other assets		40,000
Total assets	7,000,656	8,345,533
CURRENT LIABILITIES:
Notes payable	73,331	27,474
Accounts payable	4,750,794	5,410,146
Accrued expenses	482,234	497,088
Current portion of capital lease obligations	230,215	227,880
Deferred revenue	2,745,033	2,680,361
Total current liabilities	8,281,607	8,842,949
LONG TERM LIABILITIES:
Deferred revenue	1,500,000	2,000,000
Capital lease obligations	186,258	149,892
Total long term liabilities	1,686,258	2,149,892
Total liabilities	9,967,865	10,992,841
COMMITMENTS AND CONTINGENCIES:
SHAREHOLDERS' DEFICIT:
Common stock ($.001 par value; 500,000,000 shares authorized, 41,543,655 shares issued and outstanding)	41,543	41,543
Additional paid-in capital	48,246,041	46,742,784
Accumulated deficit	(65,811,544)	(63,984,757)
Total shareholders' deficit	(2,967,209)	(2,647,308)
Total liabilities and shareholders' deficit	7,000,656	8,345,533
Series A convertible preferred stock
SHAREHOLDERS' DEFICIT:
Preferred Stock value	2,864,104	2,864,104
Series B convertible preferred stock
SHAREHOLDERS' DEFICIT:
Preferred Stock value	$ 11,692,647	$ 11,689,018

XML

CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	20,000,000	20,000,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	41,543,655	41,543,655
Common stock, shares outstanding	41,543,655	41,543,655
Series A convertible preferred stock
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	3,437,500	3,437,500
Preferred stock, shares issued	1,276,750	1,276,750
Preferred stock, shares outstanding	1,276,750	1,276,750
Preferred stock, liquidation preference issue value	$ 12,767,500	$ 12,767,500
Series B convertible preferred stock
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	11,000,000	11,000,000
Preferred stock, shares issued	5,307,212	5,305,852
Preferred stock, shares outstanding	5,307,212	5,305,852
Preferred stock, liquidation preference issue value	$ 15,921,636	$ 15,917,556

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Statement [Abstract]
Revenues, net of $1,299,963 of stock based fees paid to a client during the quarter ended June 30, 2016	$ 5,647,379	$ 6,381,855	$ 16,883,950	$ 15,702,781
Cost of revenues	4,322,737	5,324,024	14,564,361	16,339,394
Gross profit (loss)	1,324,642	1,057,831	2,319,589	(636,613)
Selling, general and administrative expenses	1,275,345	1,446,394	4,181,427	4,481,886
Operating gain (loss) from continuing operations	49,297	(388,563)	(1,861,838)	(5,118,499)
Other income (expense):
Gain (loss) on the sale of equipment		(2,931)		17,738
Interest expense	(7,831)	(39,999)	(18,290)	(121,195)
Total other income (expense)	(7,831)	(42,930)	(18,290)	(103,457)
Gain (loss) from continuing operations	41,466	(431,493)	(1,880,128)	(5,221,956)
Income from discontinued operations	14,847	37,046	53,341	116,782
Net income (loss)	$ 56,313	$ (394,447)	$ (1,826,787)	$ (5,105,174)
Net income (loss) per common share - basic and diluted:
Income (loss) from operations (in dollars per share)	$ 0.01	$ (0.04)	$ (0.04)	$ (0.12)
Income from discontinued operations
Net income (loss) per common share (in dollars per share)	$ 0.01	$ (0.04)	$ (0.04)	$ (0.12)
Weighted average common shares outstanding - basic and diluted (in shares)	41,543,655	41,543,655	41,543,655	41,543,655

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Parentheticals)	9 Months Ended
	Sep. 30, 2016 USD ($)
Income Statement [Abstract]
Stock based compensation to client	$ 1,299,963

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash Flows From Operating Activities:
Net loss	$ (1,826,787)	$ (5,105,174)
Less: income from discontinued operations	(53,341)	(116,782)
Loss from continuing operations	(1,880,128)	(5,221,956)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	375,256	474,535
Stock-based compensation	202,843	433,473
Stock based fees paid to client as a reduction to revenue	1,299,963
(Gain) on the sale of used equipment		(17,738)
Changes in assets and liabilities:
Accounts receivable	714,875	(4,287,860)
Prepaid expenses	24,695	60,778
Other current assets	2,196	1,611
Accounts payable	(659,352)	1,298,909
Accrued interest on secured note from related party		89,425
Accrued expenses	(14,854)	155,632
Deferred revenue	(435,328)	2,706,139
Net cash used in continuing operations	(369,834)	(4,307,052)
Net cash provided by discontinued operations	62,265	122,458
Net cash used in operating activities	(307,569)	(4,184,594)
Cash Flows From Investing Activities:
Purchase of property and equipment	(30,702)	(129,188)
Proceeds from the sale of equipment		79,053
Net cash used in investing activities	(30,702)	(50,135)
Cash Flows From Financing Activities:
Gross proceeds from sale of preferred stock and warrants	4,080	899,998
Payments on notes payable	(78,768)	(487,478)
Gross proceeds from secured note from related party		2,000,000
Gross proceeds loan payable to related party		500,000
Payments on capital leases	(193,434)	(140,371)
Net cash provided by (used in) financing activities	(268,122)	2,772,149
Net (decrease) in cash	(606,393)	(1,462,580)
Cash - beginning of the period	3,398,293	3,431,001
Cash - end of the period	2,791,900	1,968,421
Supplemental Disclosures of Cash Flow Information
Cash payments for interest	18,290	31,770
Non cash investing and financing activities:
Acquisition of equipment acquired through capital leases	$ 232,135
Accrued interest on loan payable		89,425
Fair value of warrant liability whose anti-dilution provisions expired during the period		5,760
Issuance of preferred stock and warrants valued at the amounts owed on secured notes plus accrued interest from related party and loan from related party		$ 2,089,425

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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' clients include insurance carriers and third party administrators. The Company realizes revenue from the sale of software licenses, application service provider fees, hosting fees, software maintenance fees and consulting and implementation services.

Basis of presentation and principles of consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2015 and notes thereto and other pertinent information contained in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “Commission”).

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

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates in 2016 and 2015 include the allowance for doubtful accounts, stock-based compensation, the useful lives and valuation of property and equipment, and deferred revenue.

Cash and cash equivalents

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

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 September 30, 2016 and December 31, 2015, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $0 and $140,946, respectively.

Fair value of financial instruments

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and capital leases approximated fair value as of September 30, 2016 and December 31, 2015, 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. As of September 30, 2016, the tax years ended December 31, 2015, 2014, 2013 and 2012 are still subject to audit.

Income (loss) per common share

Basic earnings per share is computed by dividing income (loss) from continuing operations by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the adjusted net income (loss) from operations for diluted earnings per share by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The effects of common stock equivalents and potentially dilutive securities outstanding during 2016 and 2015 are excluded from the calculation of diluted income (loss) per common share because it is anti-dilutive.

The Company's common stock equivalents include the following:

	September 30, 2016		December 31, 2015
Series A convertible preferred stock issued and outstanding		25,535,000		25,535,000
Series B convertible preferred stock issued and outstanding		106,144,240		106,117,040
Options to purchase common stock issued and outstanding		4,000,000		2,975,000
Warrants to purchase common stock issued and outstanding		25,098,330		25,084,730
Warrants to purchase series A convertible preferred stock, issued and outstanding		7,600,000		7,600,000
Warrants to purchase series B convertible preferred stock, issued and outstanding		65,000,000		25,000,000
		233,377,570		192,311,770

Revenue recognition and deferred revenue

Revenues for nine months ended September 30, 2016, include a reduction in the amount of $1,299,963 for stock based fees paid to a client. See Note 6 - Stockholders’ Deficit – Series B Preferred Stock Warrants.

The Company offers InsPro Enterprise^TM on both a licensed and an ASP basis. An InsPro Enterprise software license entitles the purchaser a perpetual license to a copy of the InsPro Enterprise software installed at a single client location or hosted by InsPro Technologies. Alternatively, ASP hosting service enables a client to lease the InsPro Enterprise software, paying only for that capacity required to support their business. ASP and hosting clients access InsPro Enterprise installed on clients’ servers or on the Company’s servers located at a third party’s site.

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

The Company’s consulting and implementation services are generally associated with the implementation of InsPro Enterprise for either an ASP or licensed client, and cover such activity as InsPro Enterprise installation, configuration, modification of InsPro Enterprise functionality, client insurance plan set-up, client insurance document design and system documentation.

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

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

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

Effective August 18, 2015, the Company entered into a 5 year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated 3^rd party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective clients for their administration of long term care insurance products for an initial fee of $2,500,000 (the “Reseller Fee”). Pursuant to the Reseller Agreement, the Reseller Fee is fully or partially refundable to the Reseller in the event that the Company material breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation, seeks protection under bankruptcy, or materially breaches the Reseller Agreement during the term of the Reseller Agreement (each a “Refund Event”). The Reseller Fee was fully refundable if a Refund Event occurred before August 31, 2016. A Refund Event did not occur as of September 30, 2016, and as a result the Company recognized $500,000 of Reseller Fee as revenue in the three and nine months ended September 30, 2016. The Company shall refund the following amounts to the Reseller if a Refund Event occurs between the following dates; $2,000,000 between September 1, 2016 and August 31, 2017, $1,500,000 between September 1, 2017 and August 31, 2018, and $1,000,000 between September 1, 2018 and August 31, 2019. As of September 30, 2016 the Company has recorded the $2,000,000 Reseller Fee in deferred revenue ($500,000 included in short term liabilities and $1,500,000 included in long term liabilities).

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

Cost of revenues

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Compensation, employee benefits and related taxes	$	1,611,665	$	1,962,026	$	5,641,370	$	5,972,150
Professional fees		2,413,791		3,066,414		7,981,721		9,014,589
Depreciation		90,856		97,660		287,163		388,021
Rent, utilities, telephone and communications		102,784		126,378		338,117		359,334
Other cost of revenues		103,641		71,546		315,990		605,300
	$	4,322,737	$	5,324,024	$	14,564,361	$	16,339,394

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 September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Compensation, employee benefits and related taxes	$	755,185	$	851,593	$	2,561,625	$	2,551,107
Advertising and other marketing		43,022		22,986		92,476		114,635
Depreciation		30,786		21,967		88,093		86,514
Rent, utilities, telephone and communications		100,516		92,955		304,724		270,890
Professional fees		163,559		190,333		568,111		687,730
Other general and administrative		182,277		266,560		566,398		771,010
	$	1,275,345	$	1,446,394	$	4,181,427	$	4,481,886

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 September 30, 2016, the Company had $2,791,900 of cash in United States bank deposits, of which $500,946 was federally insured and $2,290,954 was not federally insured.

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

	September 30, 2016			December 31, 2015
Client #1		33	%		32	%
Client #2		15	%		17	%
Client #3		14	%		13	%
Client #4		-			11	%

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

	For the 9 Months Ended September 30,
	2016			2015
Client #1		25	%		24	%
Client #2		16	%		12	%
Client #3		15	%		-

Stock-based compensation

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

Non-employee stock based compensation

The cost of stock based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied.

Registration rights agreements

At September 30, 2016, 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 September 30, 2016. See Note 6 - Stockholders Deficit – Registration and Participation Rights.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by FASB, which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), that outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09 to the beginning of 2018 for public companies, with an option that would permit companies to adopt the standard as early as the original effective date of 2017. ASU 2014-09 may be adopted either retrospectively or on a modified retrospective basis whereby it would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for those contracts. We are currently evaluating the impacts of the adoption of ASU 2014-09 on our consolidated financial position, results from operations and related disclosures, along with the implementation approach to be used.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), that 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. ASU 2016-02 is effective for the Company at the beginning of fiscal year 2019 and early adoption is permitted. Entities must adopt ASU 2016-02 on a modified retrospective basis whereby it would be applied at the beginning of the earliest comparative year. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for the Company at the beginning of fiscal year 2019. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

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DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS

NOTE 2 – DISCONTINUED OPERATIONS

The Company has classified its former telesales call center and external agent produced agency business as discontinued operations. During the first quarter of 2009, the Company ceased the direct marketing and sale of health and life insurance and related products to individuals and families in its telesales call center. The Company also determined to discontinue selling health and life insurance and related products to individuals and families through its non-employee agents. On February 20, 2009, the Company entered into and completed the sale of its agency business to an unaffiliated third party, pursuant to the terms of a client transition agreement.

The financial position of discontinued operations was as follows:

	September 30, 2016		December 31, 2015
Accounts receivable	$	6,288	$	15,212
Net current assets of discontinued operations	$	6,288	$	15,212

The results of discontinued operations do not include any allocated or common overhead expenses. The results of operations of discontinued operations were as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Revenues:
Commission and other revenue from carriers	$	2,068	$	3,633	$	7,627	$	12,320
Transition policy commission pursuant to the Agreement		21,169		39,680		67,581		126,208
		23,237		43,313		75,208		138,528
Operating expenses:
Other general and administrative		8,390		6,267		21,867		21,745
		8,390		6,267		21,867		21,745
Income from discontinued operations	$	14,847	$	37,046	$	53,341	$	116,782

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PROPERTY AND EQUIPMENT

9 Months Ended

Sep. 30, 2016

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	Useful Life (Years)	September 30, 2016			December 31, 2015
Computer equipment and software	3	$	4,415,764		$	4,152,927
Office equipment	4.6		158,732			158,732
Office furniture and fixtures	6.7		189,857			189,857
Leasehold improvements	5.4		94,620			94,620
			4,858,973			4,596,136
Less accumulated depreciation			(4,223,455	)		(3,848,199	)
		$	635,518		$	747,937

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Depreciation included in cost of revenues	$	90,856	$	97,660	$	287,163	$	388,021
Depreciation included in selling, general and administrative		30,786		21,967		88,093		86,514
Total depreciation	$	121,642	$	119,627	$	375,256	$	474,535

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NOTES PAYABLE

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 4 – NOTES PAYABLE

Notes payable at September 30, 2016, consist of two notes payable for insurance premium financing on two of the Company’s insurance policies. The first note commenced on April 28, 2016, has an annual interest rate of 8.75% and consists of 11 monthly payments of principal and interest of $7,456 per month commencing on May 28, 2016 and ending on March 28, 2017. The second note commenced on May 3, 2016, has an annual interest rate of 7.99% and consists of 11 monthly payments of principal and interest of $4,358 per month commencing on June 3, 2016 and ending on April 3, 2017.

Notes payable at December 31, 2015, consist of two notes payable for insurance premium financing on two of the Company’s insurance policies. The first note commenced on April 28, 2015, has an annual interest rate of 7.50% and consists of 11 monthly payments of principal and interest of $7,566 per month commencing on May 28, 2015 and ending on March 28, 2016. The second note commenced on May 3, 2015, has an annual interest rate of 7.99% and consists of 11 monthly payments of principal and interest of $4,396 per month commencing on June 3, 2015 and ending on April 3, 2016.

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TRANSACTIONS AND LOANS FROM RELATED PARTIES

9 Months Ended

Sep. 30, 2016

Related Party Transactions [Abstract]

TRANSACTIONS AND LOANS FROM RELATED PARTIES

NOTE 5 – TRANSACTIONS AND LOANS FROM RELATED PARTIES

On January 30, 2015, the Company and InsPro Technologies issued a Secured Convertible Promissory Note (“Note”) to The Co-Investment Fund II L. P. (“Co-Investment”), pursuant to a Secured Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”). In connection with the Note Purchase Agreement, the Company and InsPro Technologies, LLC (“InsPro LLC, and together with the Company, the “Borrowers”) and Co-Investment entered into a Security Agreement (the “Security Agreement”, and together with the Note and the Note Purchase Agreement, the “Financing Agreements”). Pursuant to the terms and subject to the conditions set forth in the Financing Agreements, Co-Investment provided a loan in the amount of $1,000,000 (“Loan”) to the Borrowers, which was secured by all assets of the Borrowers other than copyright applications, copyright registration, patents, patent applications, trademarks, services markets and other intellectual property (collectively, the “Collateral”). Pursuant to the Note, interest in the amount of 8% per annum, calculated on a 365 or 366 day year, as the case may be, and the principal amount of $1,000,000 and accrued interest were paid on September 18, 2015. Co-Investment has the right to convert principal and accrued interest into the equity securities of the Company in the event that the Company issues and sells equity securities to investors on or before the repayment in full of the Note in an equity financing resulting in gross proceeds to the Company of at least $1,000,000.

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

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

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

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

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

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

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

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STOCKHOLDERS' DEFICIT

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

STOCKHOLDERS' DEFICIT

NOTE 6 – STOCKHOLDERS’ DEFICIT

Common Stock

As of September 30, 2016 and December 31, 2015, the Company was authorized to issue 500,000,000 shares of common stock with a par value of $0.001 per share (“Common Stock”). As of September 30, 2016 and December 31, 2015, the Company had 41,543,655 shares of its Common Stock issued and outstanding. The Company has reserved shares of Common Stock, on an as-if-converted basis, as follows:

	September 30, 2016		December 31, 2015
Exercise of options issued and outstanding to purchase common stock		4,000,000		2,975,000
Issuance of common shares available under the 2010 Equity Compensation Plan		24,996,980		26,021,980
Exercise of warrants issued and outstanding to purchase common stock		25,098,330		25,084,730
Conversion of series A convertible preferred stock issued and outstanding into common stock		25,535,000		25,535,000
Exercise of warrants to purchase series A convertible preferred stock issued and outstanding and converted into common stock		7,600,000		7,600,000
Conversion of series B convertible preferred stock issued and outstanding into common stock		106,144,240		106,117,040
Exercise of warrants to purchase series B convertible preferred stock issued and outstanding and converted into common stock		65,000,000		25,000,000
Total common stock reserved for issuance		258,374,550		218,333,750

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

Series A Convertible Preferred Stock

As of September 30, 2016 and December 31, 2015, the Company was authorized to issue 3,437,500 shares of Series A Convertible Preferred Stock par value $0.001 per share (“Series A Preferred Stock”). As of September 30, 2016 and December 31, 2015, the Company had 1,276,750 shares of its Series A Preferred Stock issued and outstanding. As of September 30, 2016 and December 31, 2015, the Company has reserved 380,000 shares of Series A Preferred Stock for the exercise of warrants issued and outstanding to purchase its Series A Preferred Stock.

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

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

Series B Convertible Preferred Stock

As of September 30, 2016 and December 31, 2015, the Company was authorized to issue 11,000,000 shares of Series B Convertible Preferred Stock par value $0.001 per share (“Series B Preferred Stock”). As of September 30, 2016 and December 31, 2015, the Company had 5,307,212 and 5,305,852 of its Series B Preferred Stock issued and outstanding, respectively. As of September 30, 2016 and December 31, 2015, the Company has reserved 3,250,000 and 1,250,000 shares of Series B Preferred Stock for the exercise of warrants issued and outstanding to purchase its Series B Preferred Stock, respectively.

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

As of September 30, 2016 and December 31, 2015, 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 and $15,917,556, respectively, subject to certain customary adjustments, or (B) the amount such share of Series B Preferred Stock would receive if it participated pari passu with the holders of Common Stock and preferred stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series B Preferred Stock times $3.00. Each share of Series B Preferred Stock 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 (Y) any amendment to the Company’s certificate of incorporation or bylaws that would adversely alter the voting powers, preferences or special rights of the Series B Preferred Stock or (Z) any amendment to the Company’s certificate of incorporation to create any shares of capital stock that rank senior to the Series B Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series B Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series B Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series B Preferred Stock with an amount per share equal the Series B Preferred Stock original issue price, or $15,921,636, in aggregate for all issued and outstanding Series B Preferred Stock.

On February 2, 2016 the Company filed a registration statement for a rights offering on Form S-1/A, which the Commission declared effective on February 5, 2016, to distribute to shareholders excluding residents of Arizona and California at no charge, one non-transferable subscription right for each 16,615 shares of our Common Stock, 831 shares of our Series A Preferred Stock and 830 shares of our Series B Preferred Stock owned as of January 31, 2016 (the “Record Date”), either as a holder of record or, in the case of shares held of record by brokers, dealers, custodian banks, or other nominees on shareholders’ behalf, as a beneficial owner of such shares. If the rights offering was fully subscribed the gross proceeds from the rights offering would have been approximately $2.5 million. This rights offering was designed to give all of the holders of the Company’s capital stock the opportunity to participate in an equity investment in the Company on the same economic terms as the Private Placement.

The basic subscription right entitled the holder to purchase one unit (“Subscription Unit”) at a subscription price of $240. A Subscription Unit consisted of 80 shares of Series B Preferred Stock and a warrant to purchase 800 shares of Common Stock that expires on November 20, 2017 at an exercise price of $0.15 per share. In the event that a holder of a Subscription Unit purchased all of the basic Subscription Units available to the holder then pursuant to their basic subscription right, the holder had the option to choose to subscribe for a portion of any Subscription Units that were not purchased by all other holders of Subscription Units through the exercise of their basic subscription rights.

Effective with the expiration of the subscription rights, which occurred on March 14, 2016, holders of subscription rights exercised in aggregate 17 basic subscription rights and 0 over subscription rights for a total 17 Subscription Units. The Company received $4,080 in gross proceeds as a result of the exercise of Subscription Units. As a result of the exercise of 17 Subscription Units the Company issued effective on March 14, 2016 in aggregate 1,360 shares of Series B Preferred Stock and of warrants to purchase in aggregate 13,600 shares of Common Stock that expires on November 20, 2017 at an exercise price of $0.15 per share (the “2016 Warrants”). Effective with the expiration of the subscription rights all unexercised subscription rights expired.

The Company allocated $451 of the $4,080 proceeds received as a result of the rights offering, which represent the fair value of the 2016 Warrants, to additional paid in capital using a Black-Scholes option pricing model with the following assumptions: expected volatility of 259%, a risk-free interest rate of 0.51%, an expected term of 1.7 years and 0% dividend yield. The remaining $3,629 of the proceeds received was allocated to the Series B Preferred Stock.

Stock Options

On March 31, 2016, the Company granted two executives of the Company options to purchase a total of 1,000,000 shares of the Company’s Common Stock, which vest as follows: 250,000 shares of Common Stock on March 31 of each year from 2017 to 2020. Such options have a five year term and an exercise price of $0.10 per share, which exceeded the $0.04 closing price of one share of the Company’s Common Stock as quoted on the OTCBB on March 31, 2016. The fair value of the options granted was estimated on the date of the grant to be $40,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 724%, risk-free interest rate: 0.38%, expected life in years: 5 based on the contract life of the option grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to these options in salaries, commission and related taxes of $2,500 in the nine months ended September 30, 2016.

On May 20, 2016, the Company granted to an executive of the Company options to purchase a total of 500,000 shares of the Company’s Common Stock, which vest as follows: 125,000 shares of Common Stock on May 20 of each year from 2017 to 2020. Such options have a five year term and an exercise price of $0.10 per share, which exceeded the $0.04 closing price of one share of the Company’s Common Stock as quoted on the OTCBB on May 20, 2016. The fair value of the options granted was estimated on the date of the grant to be $16,000 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 710%, risk-free interest rate: 0.32%, expected life in years: 5 based on the contract life of the option grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to these options in salaries, commission and related taxes of $666 in the nine months ended September 30, 2016.

During the nine months ended September 30, 2016, 475,000 options, which were previously granted to directors and a former employee of the Company, expired in accordance with the terms of such stock options.

As of September 30, 2016, there were 30,000,000 shares of our Common Stock authorized to be issued under the Company’s 2010 Equity Compensation Plan, of which 24,996,980 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 $202,843 for the nine months ended September 30, 2016, which included $55,463 of expense pertaining to stock options and $147,380 of expense pertaining to the amendment of warrants to purchase Series A Preferred Stock. See Note 6 – Stockholders Deficit – Series A Preferred Stock Warrants.

The value of equity compensation expense not yet expensed pertaining to unvested equity compensation for both options to purchase common stock and Series A Preferred Stock was $157,992 as of September 30, 2016, which will be recognized over a weighted average 2.6 years in the future.

A summary of the Company's outstanding stock options as of and for the nine months ended September 30, 2016 are as follows:

	Number			Weighted				Weighted
	Of Shares			Average		Weighted		Average		Aggregate
	Underlying			Exercise		Average		Remaining		Intrinsic
	Options			Price		Fair Value		Contractual Life		Value (1)
								(in years)
Outstanding at December 31, 2015		2,975,000		$	0.90	$	0.54		2.53	$	-
For the period ended September 30, 2016
Granted		1,500,000			0.10		0.04
Exercised		-			-		-
Expired		(475,000	)		3.58		2.94
Outstanding at September 30, 2016		4,000,000		$	0.10	$	0.06		-	$	-
Outstanding and exercisable at September 30, 2016		1,391,666		$	0.10	$	0.10		3.69	$	-

(1) The aggregate intrinsic value is based on the $0.08 closing price as of September 30, 2016 for the Company’s Common Stock.

Common Stock Warrants

On March 14, 2016, the 2016 Warrants were issued in connection with the rights offering. See Note 6 – Stockholders Deficit – Series B Preferred Stock. The Company determined the 2016 Warrants qualify for a scope exception under ASC 815 as they were determined to be indexed to the Company’s stock.

Outstanding warrants at September 30, 2016 have an average weighted average remaining contractual life of 1.1 years. A summary of the status of the Company's outstanding common stock warrants as of and for the nine months ended September 30, 2016 are as follows:

			Weighted
	Common		Average
	Stock		Exercise
	Warrants		Price
Outstanding and exercisable at December 31, 2015		25,084,730	$	0.15
For the period ended September 30, 2016
Granted		13,600		0.15
Exercised		-		-
Expired		-		-
Outstanding and exercisable at September 30, 2016		25,098,330	$	0.15

Series A Preferred Stock Warrants

On March 31, 2016, the Company amended and restated a warrant to purchase a total of 150,000 shares of the Company’s Series A Preferred Stock originally granted to Mr. Robert J. Oakes on August 18, 2010, and also amended and restated a warrant to purchase a total of 150,000 shares of the Company’s Series A Preferred Stock originally granted to Mr. Anthony R. Verdi on September 14, 2011 (collectively the “Original Warrants”). Immediately prior to March 31, 2016, the Original Warrants had an expiration date of September 14, 2016 and the Original Warrants were amended and restated to have an expiration date of September 14, 2017 (as amended, the “Amended and Restated Warrants”). The Amended and Restated Warrants are fully exercisable and have an exercise price of $4.00 per share. The fair value of the amendment to the Amended and Restated Warrants was estimated on the date of the amendment to be the difference between the value of the Amended and Restated Warrants immediately before and after the change in the expiration date. The fair value of the Amended and Restated Warrants was estimated on the date of the amendment before the change in the expiration date to be $2,224 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 111%, risk-free interest rate: 0.38%, expected life in years: 0.5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. The fair value of the Amended and Restated Warrants was estimated on the date of the amendment after the change in the expiration date to be $149,605 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 263%, risk-free interest rate: 0.38%, expected life in years: 1.5 based on the contract life of the warrant grant, and assumed dividend yield: 0%. The Company recorded compensation expense pertaining to the Amended and Restated Warrant in salaries, commission and related taxes of $147,380 in the nine months ended September 30, 2016.

Outstanding warrants to purchase the Company’s Series A Preferred Stock at September 30, 2016 have a remaining contractual life of 1 year. A summary of the status of the Company's outstanding Series A Preferred Stock warrants as of and for the nine months ended September 30, 2016 are as follows:

			Weighted
	Preferred		Average
	Stock		Exercise
	Warrants		Price
Outstanding and exercisable at December 31, 2015		380,000	$	4.00
For the period ended September 30, 2016
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding and exercisable at September 30, 2016		380,000	$	4.00

Series B Preferred Stock Warrants

On April 4, 2016, the Company entered into an agreement with an existing client, which among other things, included a provision that the Company issue a warrant to the client to purchase 2,000,000 shares of the Company’s Series B Preferred Stock, which is immediately exercisable (the “2016 Series B Warrants”). The 2016 Series B Warrants have a three year term, a cashless exercise provision and an exercise price of $3.00 per share. On May 4, 2016 the Company issued the 2016 Series B Warrant to the client. The fair value of the 2016 Series B Warrants was estimated on April 4, 2016, which was the date of the agreement with the client, to be $1,299,963 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility: 503%, risk-free interest rate: 0.38%, expected life in years: 3 based on the contract life of the 2016 Series B Warrants, and assumed dividend yield: 0%. The Company determined the 2016 Series B Warrants qualify for a scope exception under ASC 815 as they were determined to be indexed to the Company’s stock. The Company recorded the fair value of the 2016 Series B Warrant as an increase to additional paid in capital and a reduction to revenue in the nine months ended September 30, 2016, in the amount of $1,299,963.

Outstanding preferred stock warrants to purchase the Company’s Series B Preferred Stock at September 30, 2016 have a remaining contractual life of 2.6 years. A summary of the status of the Company's outstanding Series B Preferred Stock warrants as of and for the nine months ended September 30, 2016 are as follows:

			Weighted
	Preferred		Average
	Stock		Exercise
	Warrants		Price
Outstanding and exercisable at December 31, 2015		1,250,000	$	3.00
For the period ended September 30, 2016
Granted		2,000,000		3.00
Exercised		-		-
Expired		-		-
Outstanding and exercisable at September 30, 2016		3,250,000	$	3.00

Registration and Participation Rights

As of September 30, 2016, the Company has not received a demand notice in connection with any of the Company’s various registration rights agreements.

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CAPITAL LEASE OBLIGATIONS

9 Months Ended

Sep. 30, 2016

Leases, Capital [Abstract]

CAPITAL LEASE OBLIGATIONS

NOTE 7 – CAPITAL LEASE OBLIGATIONS

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

Property and equipment includes the following amounts for leases that have been capitalized as of September 30, 2016 and December 31, 2015:

		September 30, 2016			December 31, 2015
	Useful Life (Years)
Computer equipment and software	3	$	1,576,226		$	1,344,091
Phone System	3		15,011			15,011
			1,591,237			1,359,102
Less accumulated depreciation			(1,185,594	)		(990,007	)
		$	405,643		$	369,095

Future minimum payments required under capital leases at September 30, 2016 are as follows:

2016	$	80,961
2017		203,110
2018		130,693
2019		30,307
Total future payments		445,071
Less amount representing interest		28,598
Present value of future minimum payments		416,473
Less current portion		230,215
Long-term portion	$	186,258

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DEFINED CONTRIBUTION 401(k) PLAN

9 Months Ended

Sep. 30, 2016

Compensation and Retirement Disclosure [Abstract]

DEFINED CONTRIBUTION 401(k) PLAN

NOTE 8 – DEFINED CONTRIBUTION 401(k) PLAN

The Company implemented a 401(k) plan on January 1, 2007. Eligible employees contribute to the 401(k) plan. Employees become eligible after attaining age 19 and after 6 months of employment with the Company. An employee may become a participant of the 401(k) plan on the first day of the month following the completion of the eligibility requirements. Effective January 1, 2007 the Company implemented an elective contribution to the plan of 25% of the employee’s contribution up to 4% of the employee’s compensation. The contributions are subject to a vesting schedule and become fully vested after one year of service, retirement, death or disability, whichever occurs first. The Company made contributions of $61,701 and $61,925 for the nine months ended September 30, 2016 and 2015, respectively.

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COMMITTMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITTMENTS AND CONTINGENCIES

NOTE 9 – COMMITTMENTS AND CONTINGENCIES

On July 7, 2006, the Company entered into a lease agreement with Radnor Properties-SDC, L.P. (the “Landlord”) for the lease of 7,414 square feet of office space located in Radnor Financial Center, Building B, 150 Radnor-Chester Road, Radnor, Pennsylvania. The term of the lease commenced on November 1, 2006, which was the date the Company, with the Landlord’s prior consent, assumed possession of the premises and the date the Landlord tendered possession of the premises to the Company following the substantial completion of the improvements required to be made by the Landlord under the lease agreement, and will expire on the last day of the 125^th month following the commencement of the lease term. The lease will expire on March 31, 2017, in accordance with the terms of the lease. The annual rent increases every 12 months, starting at approximately $161,592 plus a proportionate share of Landlord’s building expenses after the second month and ending at approximately $258,378 plus a proportionate share of Landlord’s building expenses. Under the terms of the lease agreement, rent was waived for the first five months of the lease term with respect to 5,238 square feet and for the first twelve months for the remaining 2,176 square feet. The Company recorded a liability for deferred rent in accrued liabilities in the amount of $15,128 as of September 30, 2016.

On September 14, 2007, InsPro LLC entered into a lease agreement (the “Lease Agreement”) with BPG Officer VI Baldwin Tower L.P. (“BPG”). On April 28, 2015, InsPro LLC and BPG entered into a fifth amendment to the Lease Agreement whereby InsPro LLC and BPG agreed to amend the Lease Agreement to increase the leased office space by 6,801 rentable square feet effective April 1, 2015, through March 31, 2016, at an incremental monthly rent of $10,000. On June 9, 2016, InsPro LLC and BPG entered into a sixth amendment to the Lease Agreement whereby InsPro LLC and BPG agreed to amend the Lease Agreement to extend the term through January 31, 2018 for 17,567 of rentable square feet at a monthly cost of $28,546 for the period February 1, 2017 through January 31, 2018.

Future minimum payments required under operating leases and service agreements at September 30, 2016 are as follows:

2016	$	205,490
2017		522,274
2018		29,398
2019		-
thereafter		-
Total	$	757,162

The Company leases certain real and personal property under non-cancelable operating leases. Rent expense was $140,393 and $172,496 for the three months ended September 30, 2016 and 2015, respectively. Rent expense was $470,960 and $488,977 for the nine months ended September 30, 2016 and 2015, respectively.

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

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Basis of presentation and principles of consolidation

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, 2015 and notes thereto and other pertinent information contained in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “Commission”).

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

Use of estimates

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 2016 and 2015 include the allowance for doubtful accounts, stock-based compensation, the useful lives and valuation of property and equipment, and deferred revenue.

Cash and cash equivalents

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

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 September 30, 2016 and December 31, 2015, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $0 and $140,946, respectively.

Fair value of financial instruments

Fair value of financial instruments

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and capital leases approximated fair value as of September 30, 2016 and December 31, 2015, 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

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

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

Income taxes

The Company accounts for income taxes pursuant to the provisions of FASB ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The Company follows the provisions of the ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

The Company has adopted FASB ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. As of September 30, 2016, the tax years ended December 31, 2015, 2014, 2013 and 2012 are still subject to audit.

Income (loss) per common share

Income (loss) per common share

Basic earnings per share is computed by dividing income (loss) from continuing operations by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the adjusted net income (loss) from operations for diluted earnings per share by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The effects of common stock equivalents and potentially dilutive securities outstanding during 2016 and 2015 are excluded from the calculation of diluted income (loss) per common share because it is anti-dilutive.

The Company's common stock equivalents include the following:

	September 30, 2016		December 31, 2015
Series A convertible preferred stock issued and outstanding		25,535,000		25,535,000
Series B convertible preferred stock issued and outstanding		106,144,240		106,117,040
Options to purchase common stock issued and outstanding		4,000,000		2,975,000
Warrants to purchase common stock issued and outstanding		25,098,330		25,084,730
Warrants to purchase series A convertible preferred stock, issued and outstanding		7,600,000		7,600,000
Warrants to purchase series B convertible preferred stock, issued and outstanding		65,000,000		25,000,000
		233,377,570		192,311,770

Revenue recognition and deferred revenue

Revenue recognition and deferred revenue

Revenues for nine months ended September 30, 2016, include a reduction in the amount of $1,299,963 for stock based fees paid to a client. See Note 6 - Stockholders’ Deficit – Series B Preferred Stock Warrants.

The Company offers InsPro Enterprise^TM on both a licensed and an ASP basis. An InsPro Enterprise software license entitles the purchaser a perpetual license to a copy of the InsPro Enterprise software installed at a single client location or hosted by InsPro Technologies. Alternatively, ASP hosting service enables a client to lease the InsPro Enterprise software, paying only for that capacity required to support their business. ASP and hosting clients access InsPro Enterprise installed on clients’ servers or on the Company’s servers located at a third party’s site.

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

The Company’s consulting and implementation services are generally associated with the implementation of InsPro Enterprise for either an ASP or licensed client, and cover such activity as InsPro Enterprise installation, configuration, modification of InsPro Enterprise functionality, client insurance plan set-up, client insurance document design and system documentation.

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

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

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

Effective August 18, 2015, the Company entered into a 5 year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated 3^rd party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective clients for their administration of long term care insurance products for an initial fee of $2,500,000 (the “Reseller Fee”). Pursuant to the Reseller Agreement, the Reseller Fee is fully or partially refundable to the Reseller in the event that the Company material breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation, seeks protection under bankruptcy, or materially breaches the Reseller Agreement during the term of the Reseller Agreement (each a “Refund Event”). The Reseller Fee was fully refundable if a Refund Event occurred before August 31, 2016. A Refund Event did not occur as of September 30, 2016, and as a result the Company recognized $500,000 of Reseller Fee as revenue in the three and nine months ended September 30, 2016. The Company shall refund the following amounts to the Reseller if a Refund Event occurs between the following dates; $2,000,000 between September 1, 2016 and August 31, 2017, $1,500,000 between September 1, 2017 and August 31, 2018, and $1,000,000 between September 1, 2018 and August 31, 2019. As of September 30, 2016 the Company has recorded the $2,000,000 Reseller Fee in deferred revenue ($500,000 included in short term liabilities and $1,500,000 included in long term liabilities).

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

Cost of revenues

Cost of revenues

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Compensation, employee benefits and related taxes	$	1,611,665	$	1,962,026	$	5,641,370	$	5,972,150
Professional fees		2,413,791		3,066,414		7,981,721		9,014,589
Depreciation		90,856		97,660		287,163		388,021
Rent, utilities, telephone and communications		102,784		126,378		338,117		359,334
Other cost of revenues		103,641		71,546		315,990		605,300
	$	4,322,737	$	5,324,024	$	14,564,361	$	16,339,394

Selling, general and administrative expenses

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 September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Compensation, employee benefits and related taxes	$	755,186	$	851,593	$	2,561,625	$	2,551,107
Advertising and other marketing		43,022		22,986		92,476		114,635
Depreciation		30,786		21,967		88,093		86,514
Rent, utilities, telephone and communications		100,516		92,955		304,724		270,890
Professional fees		163,559		190,333		568,111		687,730
Other general and administrative		182,277		266,560		566,398		771,010
	$	1,275,346	$	1,446,394	$	4,181,427	$	4,481,886

Advertising and other marketing

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

Concentrations of credit risk

The Company maintains its cash and restricted cash in bank deposit accounts, which exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation (“FDIC”). At September 30, 2016, the Company had $2,791,900 of cash in United States bank deposits, of which $500,946 was federally insured and $2,290,954 was not federally insured.

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

	September 30, 2016			December 31, 2015
Client #1		33	%		32	%
Client #2		15	%		17	%
Client #3		14	%		13	%
Client #4		-			11	%

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

	For the 9 Months Ended September 30,
	2016			2015
Client #1		25	%		24	%
Client #2		16	%		12	%
Client #3		15	%		-

Stock-based compensation

Stock-based compensation

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

Non-employee stock based compensation

Non-employee stock based compensation

The cost of stock based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied.

Registration rights agreements

Registration rights agreements

At September 30, 2016, 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 September 30, 2016. See Note 6 - Stockholders Deficit – Registration and Participation Rights.

Recent accounting pronouncements

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by FASB, which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), that outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09 to the beginning of 2018 for public companies, with an option that would permit companies to adopt the standard as early as the original effective date of 2017. ASU 2014-09 may be adopted either retrospectively or on a modified retrospective basis whereby it would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for those contracts. We are currently evaluating the impacts of the adoption of ASU 2014-09 on our consolidated financial position, results from operations and related disclosures, along with the implementation approach to be used.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), that 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. ASU 2016-02 is effective for the Company at the beginning of fiscal year 2019 and early adoption is permitted. Entities must adopt ASU 2016-02 on a modified retrospective basis whereby it would be applied at the beginning of the earliest comparative year. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for the Company at the beginning of fiscal year 2019. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

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

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Schedule of common stock equivalents

	September 30, 2016		December 31, 2015
Series A convertible preferred stock issued and outstanding		25,535,000		25,535,000
Series B convertible preferred stock issued and outstanding		106,144,240		106,117,040
Options to purchase common stock issued and outstanding		4,000,000		2,975,000
Warrants to purchase common stock issued and outstanding		25,098,330		25,084,730
Warrants to purchase series A convertible preferred stock, issued and outstanding		7,600,000		7,600,000
Warrants to purchase series B convertible preferred stock, issued and outstanding		65,000,000		25,000,000
		233,377,570		192,311,770

Schedule of cost of revenues

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Compensation, employee benefits and related taxes	$	1,611,665	$	1,962,026	$	5,641,370	$	5,972,150
Professional fees		2,413,791		3,066,414		7,981,721		9,014,589
Depreciation		90,856		97,660		287,163		388,021
Rent, utilities, telephone and communications		102,784		126,378		338,117		359,334
Other cost of revenues		103,641		71,546		315,990		605,300
	$	4,322,737	$	5,324,024	$	14,564,361	$	16,339,394

Schedule of selling, general and administrative expenses

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Compensation, employee benefits and related taxes	$	755,185	$	851,593	$	2,561,625	$	2,551,107
Advertising and other marketing		43,022		22,986		92,476		114,635
Depreciation		30,786		21,967		88,093		86,514
Rent, utilities, telephone and communications		100,516		92,955		304,724		270,890
Professional fees		163,559		190,333		568,111		687,730
Other general and administrative		182,277		266,560		566,398		771,010
	$	1,275,345	$	1,446,394	$	4,181,427	$	4,481,886

Schedules of percentage of company's accounts receivable

	September 30, 2016			December 31, 2015
Client #1		33	%		32	%
Client #2		15	%		17	%
Client #3		14	%		13	%
Client #4		-			11	%

Schedule of percentage of company's revenue earned

	For the 9 Months Ended September 30,
	2016			2015
Client #1		25	%		24	%
Client #2		16	%		12	%
Client #3		15	%		-

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DISCONTINUED OPERATIONS (Tables)

9 Months Ended

Sep. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

Schedule of financial position and results of operations of discontinued operations

The financial position of discontinued operations was as follows:

	September 30, 2016		December 31, 2015
Accounts receivable	$	6,288	$	15,212
Net current assets of discontinued operations	$	6,288	$	15,212

The results of discontinued operations do not include any allocated or common overhead expenses. The results of operations of discontinued operations were as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Revenues:
Commission and other revenue from carriers	$	2,068	$	3,633	$	7,627	$	12,320
Transition policy commission pursuant to the Agreement		21,169		39,680		67,581		126,208
		23,237		43,313		75,208		138,528
Operating expenses:
Other general and administrative		8,390		6,267		21,867		21,745
		8,390		6,267		21,867		21,745
Income from discontinued operations	$	14,847	$	37,046	$	53,341	$	116,782

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PROPERTY AND EQUIPMENT (Tables)

9 Months Ended

Sep. 30, 2016

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

	Useful Life (Years)	September 30, 2016			December 31, 2015
Computer equipment and software	3	$	4,415,764		$	4,152,927
Office equipment	4.6		158,732			158,732
Office furniture and fixtures	6.7		189,857			189,857
Leasehold improvements	5.4		94,620			94,620
			4,858,973			4,596,136
Less accumulated depreciation			(4,223,455	)		(3,848,199	)
		$	635,518		$	747,937

Schedule of depreciation expense

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
Depreciation included in cost of revenues	$	90,856	$	97,660	$	287,163	$	388,021
Depreciation included in selling, general and administrative		30,786		21,967		88,093		86,514
Total depreciation	$	121,642	$	119,627	$	375,256	$	474,535

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STOCKHOLDERS' DEFICIT (Tables)

9 Months Ended

Sep. 30, 2016

Stockholders Equity Note [Line Items]

Schedule of reserved shares of common stock

	September 30, 2016		December 31, 2015
Exercise of options issued and outstanding to purchase common stock		4,000,000		2,975,000
Issuance of common shares available under the 2010 Equity Compensation Plan		24,996,980		26,021,980
Exercise of warrants issued and outstanding to purchase common stock		25,098,330		25,084,730
Conversion of series A convertible preferred stock issued and outstanding into common stock		25,535,000		25,535,000
Exercise of warrants to purchase series A convertible preferred stock issued and outstanding and converted into common stock		7,600,000		7,600,000
Conversion of series B convertible preferred stock issued and outstanding into common stock		106,144,240		106,117,040
Exercise of warrants to purchase series B convertible preferred stock issued and outstanding and converted into common stock		65,000,000		25,000,000
Total common stock reserved for issuance		258,374,550		218,333,750

Schedule of summary of the outstanding stock options

	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, 2015		2,975,000		$	0.90	$	0.54		2.53	$	-
For the period ended September 30, 2016
Granted		1,500,000			0.10		0.04
Exercised		-			-		-
Expired		(475,000	)		3.58		2.94
Outstanding at September 30, 2016		4,000,000		$	0.10	$	0.06		-	$	-
Outstanding and exercisable at September 30, 2016		1,391,666		$	0.10	$	0.10		3.69	$	-

(1) The aggregate intrinsic value is based on the $0.08 closing price as of September 30, 2016 for the Company’s Common Stock.

Schedule of outstanding stock warrants

			Weighted
	Common		Average
	Stock		Exercise
	Warrants		Price
Outstanding and exercisable at December 31, 2015		25,084,730	$	0.15
For the period ended September 30, 2016
Granted		13,600		0.15
Exercised		-		-
Expired		-		-
Outstanding and exercisable at September 30, 2016		25,098,330	$	0.15

Series A Preferred Stock Warrants

Stockholders Equity Note [Line Items]

Schedule of outstanding preferred stock warrants

			Weighted
	Preferred		Average
	Stock		Exercise
	Warrants		Price
Outstanding and exercisable at December 31, 2015		380,000	$	4.00
For the period ended September 30, 2016
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding and exercisable at September 30, 2016		380,000	$	4.00

Series B Preferred Stock Warrants

Stockholders Equity Note [Line Items]

Schedule of outstanding preferred stock warrants

			Weighted
	Preferred		Average
	Stock		Exercise
	Warrants		Price
Outstanding and exercisable at December 31, 2015		1,250,000	$	3.00
For the period ended September 30, 2016
Granted		2,000,000		3.00
Exercised		-		-
Expired		-		-
Outstanding and exercisable at September 30, 2016		3,250,000	$	3.00

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CAPITAL LEASE OBLIGATIONS (Tables)

9 Months Ended

Sep. 30, 2016

Leases, Capital [Abstract]

Schedule of capital leased assets

		September 30, 2016			December 31, 2015
	Useful Life (Years)
Computer equipment and software	3	$	1,576,226		$	1,344,091
Phone System	3		15,011			15,011
			1,591,237			1,359,102
Less accumulated depreciation			(1,185,594	)		(990,007	)
		$	405,643		$	369,095

Schedule of future minimum payments required under capital leases

2016	$	80,961
2017		203,110
2018		130,693
2019		30,307
Total future payments		445,071
Less amount representing interest		28,598
Present value of future minimum payments		416,473
Less current portion		230,215
Long-term portion	$	186,258

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COMMITTMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Schedule of future minimum payments required under operating leases

2016	$	205,490
2017		522,274
2018		29,398
2019		-
thereafter		-
Total	$	757,162

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Common stock equivalents (Details) - shares	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	233,377,570	192,311,770
Series A convertible preferred stock issued and outstanding
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	25,535,000	25,535,000
Series B convertible preferred stock issued and outstanding
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	106,144,240	106,117,040
Options to purchase common stock issued and outstanding
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	4,000,000	2,975,000
Warrants to purchase common stock issued and outstanding
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	25,098,330	25,084,730
Warrants to purchase series A convertible preferred stock, issued and outstanding
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	7,600,000	7,600,000
Warrants to purchase series B convertible preferred stock, issued and outstanding
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Common stock equivalents	65,000,000	25,000,000

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cost of revenues (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accounting Policies [Abstract]
Compensation, employee benefits and related taxes	$ 1,611,665	$ 1,962,026	$ 5,641,370	$ 5,972,150
Professional fees	2,413,791	3,066,414	7,981,721	9,014,589
Depreciation	90,856	97,660	287,163	388,021
Rent, utilities, telephone and communications	102,784	126,378	338,117	359,334
Other cost of revenues	103,641	71,546	315,990	605,300
Cost of revenues	$ 4,322,737	$ 5,324,024	$ 14,564,361	$ 16,339,394

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Selling, general and administrative expenses (Details 2) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accounting Policies [Abstract]
Compensation, employee benefits and related taxes	$ 755,185	$ 851,593	$ 2,561,625	$ 2,551,107
Advertising and other marketing	43,022	22,986	92,476	114,635
Depreciation	30,786	21,967	88,093	86,514
Rent, utilities, telephone and communications	100,516	92,955	304,724	270,890
Professional fees	163,559	190,333	568,111	687,730
Other general and administrative	182,277	266,560	566,398	771,010
Total selling, general and administrative expenses	$ 1,275,345	$ 1,446,394	$ 4,181,427	$ 4,481,886

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Percentage of accounts receivable balance from InsPro Enterprise clients (Details 3) - Customer Concentration Risk - Accounts Receivable	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Client #1
Concentration Risk [Line Items]
Percentage of account receivable	33.00%	32.00%
Client #2
Concentration Risk [Line Items]
Percentage of account receivable	15.00%	17.00%
Client #3
Concentration Risk [Line Items]
Percentage of account receivable	14.00%	13.00%
Client #4
Concentration Risk [Line Items]
Percentage of account receivable		11.00%

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Percentage of revenue earned from InsPro Enterprise clients (Details 4) - Customer Concentration Risk - Sales Revenue	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Client #1
Concentration Risk [Line Items]
Percentage of revenue	25.00%	24.00%
Client #2
Concentration Risk [Line Items]
Percentage of revenue	16.00%	12.00%
Client #3
Concentration Risk [Line Items]
Percentage of revenue	15.00%

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals) - USD ($)	1 Months Ended	3 Months Ended	9 Months Ended
	Aug. 18, 2015	Sep. 30, 2016	Sep. 30, 2016	Dec. 31, 2015
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Short term liabilities		$ 8,281,607	$ 8,281,607	$ 8,842,949
Long term liabilities		1,686,258	1,686,258	2,149,892
Allowance for doubtful accounts		0	0	$ 140,946
Stock based compensation to client			1,299,963
Reseller Agreement
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Term of reseller agreement	5 years
Reseller fee	$ 2,500,000	500,000	500,000
Deferred revenue		2,000,000	2,000,000
Short term liabilities		500,000	500,000
Long term liabilities		$ 1,500,000	$ 1,500,000
Reseller Agreement | Between September 1 2016 And August 31 2017
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Refund of reseller fees	2,000,000
Reseller Agreement | Between September 1 2017 And August 31 2018
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Refund of reseller fees	1,500,000
Reseller Agreement | Between September 1 2018 And August 31 2019
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Refund of reseller fees	$ 1,000,000

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals 1)	Sep. 30, 2016 USD ($)
Accounting Policies [Abstract]
Cash in United States bank deposits	$ 2,791,900
Amount federally insured	500,946
Amount not federally insured	$ 2,290,954

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DISCONTINUED OPERATIONS - Financial position of discontinued operations (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Discontinued Operations and Disposal Groups [Abstract]
Accounts receivable	$ 6,288	$ 15,212
Net current assets of discontinued operations	$ 6,288	$ 15,212

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DISCONTINUED OPERATIONS - Results of operations of discontinued operations (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Revenues	$ 23,237	$ 43,313	$ 75,208	$ 138,528
Operating expenses:
Operating expenses	8,390	6,267	21,867	21,745
Income from discontinued operations	14,847	37,046	53,341	116,782
Commission and other revenue from carriers
Revenues:
Revenues	2,068	3,633	7,627	12,320
Transition policy commission pursuant to the Agreement
Revenues:
Revenues	21,169	39,680	67,581	126,208
Other general and administrative
Operating expenses:
Operating expenses	$ 8,390	$ 6,267	$ 21,867	$ 21,745

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PROPERTY AND EQUIPMENT - Componants of property and equipment (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 4,858,973	$ 4,596,136
Less accumulated depreciation	(4,223,455)	(3,848,199)
Property and equipment, net	$ 635,518	747,937
Computer equipment and software
Property, Plant and Equipment [Line Items]
Property and equipment, useful life (years)	3 years
Property and equipment, gross	$ 4,415,764	4,152,927
Office equipment
Property, Plant and Equipment [Line Items]
Property and equipment, useful life (years)	4 years 7 months 6 days
Property and equipment, gross	$ 158,732	158,732
Office furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, useful life (years)	6 years 8 months 12 days
Property and equipment, gross	$ 189,857	189,857
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, useful life (years)	5 years 4 months 24 days
Property and equipment, gross	$ 94,620	$ 94,620

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PROPERTY AND EQUIPMENT (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Property, Plant and Equipment [Line Items]
Total depreciation	$ 121,642	$ 119,627	$ 375,256	$ 474,535
Cost of revenues
Property, Plant and Equipment [Line Items]
Total depreciation	90,856	97,660	287,163	388,021
Selling, general and administrative
Property, Plant and Equipment [Line Items]
Total depreciation	$ 30,786	$ 21,967	$ 88,093	$ 86,514

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NOTES PAYABLE (Detail Textuals) - Notes Payable			1 Months Ended
	May 03, 2016 USD ($) Monthly	May 03, 2015 USD ($) Monthly	Apr. 28, 2016 USD ($) Monthly	Apr. 28, 2015 USD ($) Monthly	Sep. 30, 2016 Notes_Payable	Dec. 31, 2015 Notes_Payable
Debt Instrument [Line Items]
Number of notes payable | Notes_Payable					2	2
Annual interest rate	7.99%	7.99%	8.75%	7.50%
Number of installments for payment | Monthly	11	11	11	11
Notes payable frequency of periodic payment	Monthly	Monthly	Monthly	Monthly
Periodic payments of principal and interest | $	$ 4,358	$ 4,396	$ 7,456	$ 7,566
Date of first required payment	Jun. 03, 2016	Jun. 03, 2015	May 28, 2016	May 28, 2015
Debt instrument, Maturity date	Apr. 03, 2017	Apr. 03, 2016	Mar. 28, 2017	Mar. 28, 2016

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TRANSACTIONS AND LOANS FROM RELATED PARTIES (Detail Textuals) - USD ($)	1 Months Ended		9 Months Ended
	Sep. 18, 2015	Jan. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Mar. 27, 2015
Related Party Transaction [Line Items]
Repayments of Notes Payable			$ 78,768	$ 487,478
Secured Convertible Promissory Note | Purchase agreement | Co-Investment Fund II L.P.
Related Party Transaction [Line Items]
Loan principal amount		$ 1,000,000			$ 1,000,000
Interest rate per annum		8.00%
Proceeds from Notes Payable		$ 1,000,000
Repayments of Notes Payable	$ 1,000,000

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TRANSACTIONS AND LOANS FROM RELATED PARTIES (Detail Textuals 1) - USD ($)		1 Months Ended		9 Months Ended
	Mar. 14, 2016	Sep. 18, 2015	Mar. 17, 2015	Sep. 30, 2015	Sep. 30, 2016
Related Party Transaction [Line Items]
Loan received				$ 500,000
Series B convertible preferred stock
Related Party Transaction [Line Items]
Number of shares issued	1,360
Number of warrants to purchase common stock	13,600
Exercise price of warrants (in dollars per share)	$ 0.15				$ 0.15
Edmond Walters
Related Party Transaction [Line Items]
Loan received			$ 500,000
Private Placement | Warrants
Related Party Transaction [Line Items]
Number of stock units issued		10
Exercise price of warrants (in dollars per share)		$ 0.15
Private Placement | Warrants | Unrelated Third Party
Related Party Transaction [Line Items]
Number of shares issued		1,500,000
Private Placement | Series B convertible preferred stock
Related Party Transaction [Line Items]
Number of stock units issued		1
Private Placement | Series B convertible preferred stock | Warrants
Related Party Transaction [Line Items]
Number of warrants to purchase common stock		11,631,410
Private Placement | Series A convertible preferred stock | Unrelated Third Party
Related Party Transaction [Line Items]
Number of shares issued		150,000
Private Placement | Co-Investment Fund II L.P. | Warrants
Related Party Transaction [Line Items]
Number of shares issued		6,964,750
Private Placement | Co-Investment Fund II L.P. | Series B convertible preferred stock
Related Party Transaction [Line Items]
Number of shares issued		696,475
Private Placement | Investor
Related Party Transaction [Line Items]
Shares issued price per share		$ 3.00
Private Placement | Investor | Series B convertible preferred stock
Related Party Transaction [Line Items]
Number of shares issued		1,163,141
Proceeds from investment		$ 3,489,423
Private Placement | Edmond Walters | Warrants
Related Party Transaction [Line Items]
Number of shares issued		1,666,660
Private Placement | Edmond Walters | Series B convertible preferred stock
Related Party Transaction [Line Items]
Number of shares issued		166,666
Private Placement | Azeez Enterprises | Warrants
Related Party Transaction [Line Items]
Number of shares issued		1,500,000
Private Placement | Azeez Enterprises | Series B convertible preferred stock
Related Party Transaction [Line Items]
Number of shares issued		150,000

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STOCKHOLDERS' DEFICIT - Reserved common stock on an as if converted basis (Details) - shares	Sep. 30, 2016	Dec. 31, 2015
Stockholders Equity Note [Line Items]
Total common stock reserved for issuance	258,374,550	218,333,750
Exercise of options issued and outstanding to purchase common stock
Stockholders Equity Note [Line Items]
Total common stock reserved for issuance	4,000,000	2,975,000
Issuance of common shares available under the 2010 Equity Compensation Plan
Stockholders Equity Note [Line Items]
Total common stock reserved for issuance	24,996,980	26,021,980
Exercise of warrants issued and outstanding to purchase common stock
Stockholders Equity Note [Line Items]
Total common stock reserved for issuance	25,098,330	25,084,730
Conversion of series A convertible preferred stock issued and outstanding into common stock
Stockholders Equity Note [Line Items]
Total common stock reserved for issuance	25,535,000	25,535,000
Exercise of warrants to purchase series A convertible preferred stock issued and outstanding and converted into common stock
Stockholders Equity Note [Line Items]
Total common stock reserved for issuance	7,600,000	7,600,000
Conversion of series B convertible preferred stock issued and outstanding into common stock
Stockholders Equity Note [Line Items]
Total common stock reserved for issuance	106,144,240	106,117,040
Exercise of warrants to purchase series B convertible preferred stock issued and outstanding and converted into common stock
Stockholders Equity Note [Line Items]
Total common stock reserved for issuance	65,000,000	25,000,000

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STOCKHOLDERS' DEFICIT - Summary of outstanding stock options (Details 1) - Stock Options - USD ($)		9 Months Ended	12 Months Ended
		Sep. 30, 2016	Dec. 31, 2015
Number Of Shares Underlying Options
Outstanding at December 31, 2015		2,975,000
Granted		1,500,000
Exercised
Expired		(475,000)
Outstanding at September 30, 2016		4,000,000	2,975,000
Outstanding and exercisable at September 30, 2016		1,391,666
Weighted Average Exercise Price
Outstanding at December 31, 2015		$ 0.90
Granted		0.10
Exercised
Expired		3.58
Outstanding at September 30, 2016		0.10	$ 0.90
Outstanding and exercisable at September 30, 2016		0.10
Weighted Average Fair Value
Outstanding at December 31, 2015		0.54
Granted		0.04
Exercised
Expired		2.94
Outstanding at September 30, 2016		0.06	$ 0.54
Outstanding and exercisable at September 30, 2016		$ 0.10
Options outstanding - Weighted average remaining contractual life (in years)			2 years 6 months 11 days
Options outstanding and exercisable - Weighted average remaining contractual life (in years)		3 years 8 months 9 days
Options outstanding - Aggregate intrinsic value	[1]
Options outstanding and exercisable - Aggregate intrinsic value	[1]

[1] The aggregate intrinsic value is based on the $0.08 closing price as of September 30, 2016 for the Company's Common Stock.

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STOCKHOLDERS' DEFICIT- Summary of outstanding stock options (Parentheticals) (Details 1)	Sep. 30, 2016 $ / shares
Equity [Abstract]
Closing price of common stock	$ 0.08

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STOCKHOLDERS' DEFICIT - Summary of status of outstanding stock warrants (Details 2) - Common Stock warrants	9 Months Ended
	Sep. 30, 2016 $ / Unit shares
Common Stock Warrants
Outstanding and exercisable at December 31, 2015 | shares	25,084,730
Granted | shares	13,600
Exercised | shares
Expired | shares
Outstanding and exercisable at September 30, 2016 | shares	25,098,330
Weighted Average Exercise Price
Outstanding and exercisable at December 31, 2015 | $ / Unit	0.15
Granted | $ / Unit	0.15
Exercised | $ / Unit
Expired | $ / Unit
Outstanding and exercisable at September 30, 2016 | $ / Unit	0.15

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STOCKHOLDERS' DEFICIT - Summary of status of outstanding series A preferred stock warrants (Details 3) - Series A Preferred Stock Warrants	9 Months Ended
	Sep. 30, 2016 $ / Unit shares
Preferred Stock warrants
Outstanding and exercisable at December 31, 2015 | shares	380,000
Granted | shares
Exercised | shares
Expired | shares
Outstanding and exercisable at September 30, 2016 | shares	380,000
Weighted Average Exercise Price
Outstanding and exercisable at December 31, 2015 | $ / Unit	4.00
Granted | $ / Unit
Exercised | $ / Unit
Expired | $ / Unit
Outstanding and exercisable at September 30, 2016 | $ / Unit	4.00

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STOCKHOLDERS' DEFICIT - Summary of status of outstanding series B preferred stock warrants (Details 4) - Series B Preferred Stock Warrants	9 Months Ended
	Sep. 30, 2016 $ / Unit shares
Preferred Stock warrants
Outstanding and exercisable at December 31, 2015 | shares	1,250,000
Granted | shares	2,000,000
Exercised | shares
Expired | shares
Outstanding and exercisable at September 30, 2016 | shares	3,250,000
Weighted Average Exercise Price
Outstanding and exercisable at December 31, 2015 | $ / Unit	3.00
Granted | $ / Unit	3.00
Exercised | $ / Unit
Expired | $ / Unit
Outstanding and exercisable at September 30, 2016 | $ / Unit	3.00

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STOCKHOLDERS' DEFICIT (Detail Textuals) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Equity [Abstract]
Common stock, shares authorized	500,000,000	500,000,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares issued	41,543,655	41,543,655
Common stock, shares outstanding	41,543,655	41,543,655

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STOCKHOLDERS' DEFICIT (Detail Textuals 1)	9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) $ / shares shares
Stockholders Equity Note [Line Items]
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, par value (in dollars per share) | $ / shares	$ 0.001	$ 0.001
Series A convertible preferred stock
Stockholders Equity Note [Line Items]
Preferred stock, shares authorized	3,437,500	3,437,500
Preferred stock, par value (in dollars per share) | $ / shares	$ 0.001	$ 0.001
Preferred stock, shares issued	1,276,750	1,276,750
Preferred stock, shares outstanding	1,276,750	1,276,750
Preferred stock, capital shares reserved for future issuance	380,000	380,000
Preferred stock, liquidation preference issue value | $	$ 12,767,500	$ 12,767,500
Preferred stock having right to votes	20 votes
Description of liquidation preference value	liquidation, sale or merger of the Company, each share of Series A Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to two and a half (2.5) times the Series A Preferred Stock original issue price, or $12,767,500, subject to certain customary adjustments
Preferred stock liquidation preference value, condition, multiple	2.5
Minimum number of shares outstanding required to effect or validate merger	1,000,000
Preferred stock, liquidation preference (in dollars per share) | $ / shares	$ 10.00
Common stock issued upon conversion	20
Series B convertible preferred stock
Stockholders Equity Note [Line Items]
Preferred stock, shares authorized	11,000,000	11,000,000
Preferred stock, par value (in dollars per share) | $ / shares	$ 0.001	$ 0.001
Preferred stock, shares issued	5,307,212	5,305,852
Preferred stock, shares outstanding	5,307,212	5,305,852
Preferred stock, capital shares reserved for future issuance	3,250,000	1,250,000
Preferred stock, liquidation preference issue value | $	$ 15,921,636	$ 15,917,556
Preferred stock having right to votes	20 votes
Description of liquidation preference value	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 and $15,917,556, respectively, subject to certain customary adjustments
Minimum number of shares outstanding required to effect or validate merger	1,000,000
Preferred stock, liquidation preference (in dollars per share) | $ / shares	$ 3.00
Common stock issued upon conversion	20

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STOCKHOLDERS' DEFICIT (Detail Textuals 2)			1 Months Ended	9 Months Ended
	Mar. 14, 2016 USD ($) Subscription_Unit $ / shares shares	Feb. 02, 2016 USD ($) $ / shares	Jan. 31, 2016 shares	Sep. 30, 2016 $ / shares shares
Stockholders Equity Note [Line Items]
Number of shares issuance right under warrant subscripted				800
Number of basic subscription right | Subscription_Unit	17
Number of over subscription right | Subscription_Unit	0
Proceeds from exercise of subscription Units | $	$ 4,080
Series B convertible preferred stock
Stockholders Equity Note [Line Items]
Exercise price of warrants (in dollars per share) | $ / shares	$ 0.15			$ 0.15
Number of shares issuance right under warrant subscripted				80
Number of shares issued	1,360
Number of common stock shares called by warrants	13,600
Right Offering
Stockholders Equity Note [Line Items]
Number of share offered through right offering			16,615
Subscription Price | $ / shares		$ 240
Gross proceeds from sale of preferred stock and warrants | $		$ 2,500,000
Right Offering | Series A convertible preferred stock
Stockholders Equity Note [Line Items]
Number of shares held			831
Right Offering | Series B convertible preferred stock
Stockholders Equity Note [Line Items]
Number of shares held			830

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STOCKHOLDERS' DEFICIT (Detail Textuals 3) - 2016 Warrants	Feb. 02, 2016 USD ($)
Stockholders Equity Note [Line Items]
Portion of proceeds from rights offering allocated to warrant liability	$ 451
Net proceeds from right offering	$ 4,080
Valuation techniques of fair value of warrant liability	Black-Scholes option pricing model
Expected volatility	259.00%
Risk free interest rate	0.51%
Expected term	1 year 8 months 12 days
Dividend yield	0.00%
Portion of proceeds alloted to warrants	$ 3,629

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STOCKHOLDERS' DEFICIT (Detail Textuals 4)	1 Months Ended	9 Months Ended
	Mar. 31, 2016 USD ($) Executive $ / shares shares	Sep. 30, 2016 USD ($) $ / shares shares
Stockholders Equity Note [Line Items]
Closing price of common stock | $ / shares		$ 0.08
Compensation expense pertaining to salaries, commission and related taxes | $		$ 55,463
Stock Options
Stockholders Equity Note [Line Items]
Number of options granted		1,500,000
Stock Options | Granted on March 31, 2016 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Number of executives | Executive	2
Number of options granted	1,000,000
Option vesting period	5 years
Option exercise price | $ / shares	$ 0.10
Value of the option granted | $	$ 40,000
Valuation method	Black-Scholes option-pricing model
Expected volatility rate	724.00%
Risk-free interest rate	0.38%
Expected life in years	5 years
Assumed dividend yield	0.00%
Closing price of common stock | $ / shares	$ 0.04
Compensation expense pertaining to salaries, commission and related taxes | $		$ 2,500
Stock Options | Granted on March 31, 2016 | Vesting on March 31, 2017 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Options vested number of shares	250,000
Stock Options | Granted on March 31, 2016 | Vesting on March 31, 2018 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Options vested number of shares	250,000
Stock Options | Granted on March 31, 2016 | Vesting on March 31, 2019 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Options vested number of shares	250,000
Stock Options | Granted on March 31, 2016 | Vesting on March 31, 2020 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Options vested number of shares	250,000

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STOCKHOLDERS' DEFICIT (Detail Textuals 5) - USD ($)	1 Months Ended	9 Months Ended
	May 20, 2016	Sep. 30, 2016
Stockholders Equity Note [Line Items]
Closing price of common stock		$ 0.08
Stock option expense		$ 55,463
Stock Options
Stockholders Equity Note [Line Items]
Number of options granted		1,500,000
Number of options expired		475,000
Stock Options | Granted on May 20, 2016 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Number of options granted	500,000
Option vesting period	5 years
Option exercise price	$ 0.10
Value of the option granted	$ 16,000
Valuation method	Black-Scholes option-pricing model
Expected volatility rate	710.00%
Risk-free interest rate	0.32%
Expected life in years	5 years
Assumed dividend yield	0.00%
Closing price of common stock	$ 0.04
Stock option expense		$ 666
Stock Options | Granted on May 20, 2016 | Vesting on May 20, 2017 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Options vested number of shares	125,000
Stock Options | Granted on May 20, 2016 | Vesting on May 20, 2018 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Options vested number of shares	125,000
Stock Options | Granted on May 20, 2016 | Vesting on May 20, 2019 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Options vested number of shares	125,000
Stock Options | Granted on May 20, 2016 | Vesting on May 20, 2020 | Executive | Common Stock
Stockholders Equity Note [Line Items]
Options vested number of shares	125,000

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STOCKHOLDERS' DEFICIT (Detail Textuals 6)	9 Months Ended
	Sep. 30, 2016 USD ($) shares
Stockholders Equity Note [Line Items]
Expense pertaining to employee stock options and warrants	$ 202,843
Stock option expense	55,463
Expense pertaining to amended and restated warrant to purchase Series A Preferred Stock	147,380
Unrecognized cost of unvested equity compensation	$ 157,992
Weighted average period for unrecognized compensation of unvested options	2 years 7 months 6 days
Stock Options | 2010 Equity Compensation Plan
Stockholders Equity Note [Line Items]
Number of shares authorized | shares	30,000,000
Common stock reserved for issuance | shares	24,996,980

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STOCKHOLDERS' DEFICIT (Detail Textuals 7) - USD ($)		1 Months Ended	9 Months Ended
	Apr. 04, 2016	Mar. 31, 2016	Sep. 30, 2016	Dec. 31, 2015
Stockholders Equity Note [Line Items]
Preferred stock, par value (in dollars per share)			$ 0.001	$ 0.001
Stock based compensation to client			$ 1,299,963
Series A Preferred Stock Warrants
Stockholders Equity Note [Line Items]
Remaining contractual life			1 year
Series A Preferred Stock Warrants | Executive
Stockholders Equity Note [Line Items]
Exercise price of warrants (in dollars per share)		$ 4.00
Compensation expense for warrants in salaries, commission and related taxes			$ 147,380
Series A Preferred Stock Warrants | Executive | Before Expiration Date
Stockholders Equity Note [Line Items]
Fair value adjustment of warrants		$ 2,224
Fair value measurements, valuation technique		Black-Scholes option-pricing model
Expected volatility		111.00%
Risk free interest rate		0.38%
Expected term		6 months
Dividend yield		0.00%
Series A Preferred Stock Warrants | Executive | After Expiration Date
Stockholders Equity Note [Line Items]
Fair value adjustment of warrants		$ 149,605
Fair value measurements, valuation technique		Black-Scholes option-pricing model
Expected volatility		263.00%
Risk free interest rate		0.38%
Expected term		1 year 6 months
Dividend yield		0.00%
Series A Preferred Stock Warrants | Executive | Mr. Robert J. Oakes
Stockholders Equity Note [Line Items]
Aggregate number of warrants		150,000
Series A Preferred Stock Warrants | Executive | Mr. Anthony R. Verdi
Stockholders Equity Note [Line Items]
Aggregate number of warrants		150,000
Series B Preferred Stock Warrants
Stockholders Equity Note [Line Items]
Remaining contractual life			2 years 7 months 6 days
Series B Preferred Stock Warrants | Executive
Stockholders Equity Note [Line Items]
Aggregate number of warrants	2,000,000
Exercise price of warrants (in dollars per share)	$ 3.00
Fair value adjustment of warrants	$ 1,299,963
Fair value measurements, valuation technique	Black-Scholes option-pricing model
Expected volatility	503.00%
Risk free interest rate	0.38%
Expected term	3 years
Dividend yield	0.00%
Stock based compensation to client			$ 1,299,963
Common Stock warrants
Stockholders Equity Note [Line Items]
Remaining contractual life			1 year 1 month 6 days

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CAPITAL LEASE OBLIGATIONS (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Capital Leased Assets [Line Items]
Capital leased assets, gross	$ 1,591,237	$ 1,359,102
Less accumulated depreciation	(1,185,594)	(990,007)
Capital leased assets, net	405,643	369,095
Computer equipment and software
Capital Leased Assets [Line Items]
Capital leased assets, gross	$ 1,576,226	1,344,091
Property and equipment, useful life (years)	3 years
Phone System
Capital Leased Assets [Line Items]
Capital leased assets, gross	$ 15,011	$ 15,011
Property and equipment, useful life (years)	3 years

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CAPITAL LEASE OBLIGATIONS (Details 1) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Leases, Capital [Abstract]
2016	$ 80,961
2017	203,110
2018	130,693
2019	30,307
Total future payments	445,071
Less amount representing interest	28,598
Present value of future minimum payments	416,473
Less current portion	230,215	$ 227,880
Long-term portion	$ 186,258	$ 149,892

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DEFINED CONTRIBUTION 401(k) PLAN - Summary of employee defined contribution (Detail Textuals) - USD ($)	1 Months Ended	9 Months Ended
	Jan. 31, 2007	Sep. 30, 2016	Sep. 30, 2015
Compensation and Retirement Disclosure [Abstract]
Description of the plan	Eligible employees contribute to the 401(k) plan. Employees become eligible after attaining age 19 and after 6 months of employment with the Company. An employee may become a participant of the 401(k) plan on the first day of the month following the completion of the eligibility requirements. Effective January 1, 2007 the Company implemented an elective contribution to the plan of 25% of the employee's contribution up to 4% of the employee's compensation. The contributions are subject to a vesting schedule and become fully vested after one year of service, retirement, death or disability, whichever occurs first.
Minimum age for eligibility	19 years
Minimum term vested in employment	6 months
Elective contribution to the plan	25.00%
Employee's matching contribution to the plan by the employer	4.00%
Employer contribution to the plan		$ 61,701	$ 61,925

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COMMITTMENTS AND CONTINGENCIES (Details)	Sep. 30, 2016 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2016	$ 205,490
2017	522,274
2018	29,398
2019
thereafter
Total	$ 757,162

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COMMITTMENTS AND CONTINGENCIES (Detail Textuals)		1 Months Ended	3 Months Ended		6 Months Ended	9 Months Ended
	Jun. 09, 2016 USD ($) ft²	Apr. 28, 2015 USD ($) ft²	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Jul. 07, 2006 USD ($) ft²	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)
Restricted Cash Commitments and Contingencies [Line Items]
Monthly rent			$ 140,393	$ 172,496		$ 470,960	$ 488,977
Lease agreement | Radnor Properties-SDC, L.P. (the "Landlord")
Restricted Cash Commitments and Contingencies [Line Items]
Office space under lease agreement | ft²					7,414
Rent plus certain building expenses per annum at beginning					$ 161,592
Rent plus certain building expenses per annum at ending					$ 258,378
Area of office space for which rent is waived for first five months of lease term | ft²					5,238
Area of office space for which rent is waived for first twelve months for remaining | ft²					2,176
Deferred rent			$ 15,128			$ 15,128
Lease agreement | BPG Officer VI Baldwin Tower L.P. ("BPG")
Restricted Cash Commitments and Contingencies [Line Items]
Office space under lease agreement | ft²	17,567	6,801
Monthly rent	$ 28,546	$ 10,000