Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2018

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

For the transition period from to

Commission file number 000-51701

INSPRO TECHNOLOGIES Corporation

(Exact Name of Registrant as Specified in Its Charter)

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

1510 Chester Pike

Suite 400

Eddystone, Pennsylvania 19022

(Address of Principal Executive Offices) (Zip Code)

(484) 654-2200

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the Registrant has submitted electronically 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,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

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

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

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

As of May 14, 2018, there were 41,543,655 outstanding shares of common stock, par value $0.001 per share, of the registrant.

INSPRO TECHNOLOGIES Corporation
Form 10-Q Quarterly Report
INDEX

	PART I
	FINANCIAL INFORMATION

Item 1	Financial Statements

	Consolidated Balance Sheets as of March 31, 2018 (UNAUDITED) and December 31, 2017	3
	Consolidated Statements of Operations (UNAUDITED) for the three months ended March 31, 2018 and 2017	4
	Consolidated Statements of Cash Flows (UNAUDITED) for the three months ended March 31, 2018 and 2017	5

	Notes to UNAUDITED Consolidated Financial Statements	6

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 4	Controls and Procedures	33

	PART II
	OTHER INFORMATION

Item 1	Legal Proceedings	33

Item 6	Exhibits	33

	Signatures	34

Page 2

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2018			December 31, 2017
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash	$	4,569,844		$	5,017,539
Accounts receivable, net		3,443,156			1,543,389
Prepaid expenses		250,294			360,975
Other current assets		-			3,806

Total current assets		8,263,294			6,925,709

Property and equipment, net		276,363			269,994

Total assets	$	8,539,657		$	7,195,703

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Notes payable	$	18,862		$	45,793
Accounts payable		1,212,108			1,484,704
Accrued expenses		996,685			1,126,596
Current portion of capital lease obligations		144,787			143,855
Deferred revenue		3,499,335			2,765,401
Income tax payable		265,000			170,000

Total current liabilities		6,136,777			5,736,349

LONG TERM LIABILITIES:
Deferred revenue		1,000,000			1,000,000
Capital lease obligations		87,294			74,861

Total long term liabilities		1,087,294			1,074,861

Total liabilities		7,224,071			6,811,210

COMMITMENTS AND CONTINGENCIES: (See Note 7)

SHAREHOLDERS' EQUITY:
Preferred stock ($.001 par value; 20,000,000 shares authorized)
Series A convertible preferred stock; 3,437,500 shares designated, 1,276,750 shares issued and outstanding (liquidation value $12,767,500)		1,277			1,277
Series B convertible preferred stock; 11,000,000 shares designated, 5,307,212 shares issued and outstanding (liquidation value $15,921,636)		5,307			5,307
Series C convertible preferred stock; 4,000,000 shares designated, 1,254,175 shares issued and outstanding (liquidation value $6,270,875)		1,254			1,254
Common stock ($.001 par value; 500,000,000 shares authorized, 41,543,655 shares issued and outstanding)		41,543			41,543
Additional paid-in capital		65,367,735			65,365,386
Accumulated deficit		(64,101,530	)		(65,030,274	)

Total shareholders' equity		1,315,586			384,493

Total liabilities and shareholders' equity	$	8,539,657		$	7,195,703

See accompanying notes to unaudited consolidated financial statements.

Page 3

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended March 31,
	2018			2017
	(Unaudited)			(Unaudited)

Revenues	$	6,187,747		$	5,065,078

Cost of revenues		3,567,525			4,108,969

Gross profit		2,620,222			956,109

Selling, general and administrative expenses		1,590,254			1,602,497

Operating income (loss) from operations		1,029,968			(646,388	)

Other income (expense):
Gain on the sale of equipment		-			5,380
Interest expense		(6,224	)		(5,294	)

Total other income (expense)		(6,224	)		86

Income (loss) before income taxes		1,023,744			(646,302	)

Provision for income taxes		95,000			-

Net income (loss)	$	928,744		$	(646,302	)

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

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

See accompanying notes to unaudited consolidated financial statements.

Page 4

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended March 31,
	2018			2017
	(Unaudited)			(Unaudited)
Cash Flows From Operating Activities:
Net income (loss)	$	928,744		$	(646,302	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		57,201			122,938
Stock-based compensation		2,349			85,090
(Gain) on the sale of used equipment		-			(5,380	)
Accounts receivable doubtful account expense		334,460			-
Changes in assets and liabilities:
Accounts receivable		(2,234,227	)		(1,413,358	)
Prepaid expenses		110,681			(128,404	)
Other current assets		3,806			1,940
Accounts payable		(272,596	)		(136,597	)
Accrued expenses		(129,911	)		140,069
Deferred revenue		733,934			935,272
Income tax payable		95,000			-

Net cash used in operating activities		(370,559	)		(1,044,732	)

Cash Flows From Investing Activities:
Purchase of property and equipment		(8,843	)		(25,214	)
Proceeds from the sale of equipment		-			5,380

Net cash used in investing activities		(8,843	)		(19,834	)

Cash Flows From Financing Activities:
Payments on notes payable		(26,931	)		(34,864	)
Payments on capital leases		(41,362	)		(76,247	)

Net cash used in financing activities		(68,293	)		(111,111	)

Net decrease in cash		(447,695	)		(1,175,677	)

Cash - beginning of the period		5,017,539			3,161,617

Cash - end of the period	$	4,569,844		$	1,985,940

Supplemental Disclosures of Cash Flow Information
Cash payments for interest	$	6,224		$	5,294
Cash payments for income taxes	$	-		$	-
Non cash investing and financing activities:
Acquisition of equipment acquired through capital leases	$	54,727		$	-

See accompanying notes to unaudited consolidated financial statements.

Page 5

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

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, 2017 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.

For purpose of comparability, certain prior period amounts have been reclassified to conform to the 2018 presentation.

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 2018 and 2017 include the allowance for doubtful accounts, stock-based compensation, the useful lives and valuation of property and equipment, valuation of deferred tax assets, and deferred revenue.

Cash and cash equivalents

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

Page 6

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

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

Accounts receivable and allowance for uncollectable accounts

The Company has a policy of establishing an allowance for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. At March 31, 2018 and December 31, 2017, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amount of $346,135 and $11,675, 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 March 31, 2018 and December 31, 2017, 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.

Page 7

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

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 March 31, 2018, the tax years ended December 31, 2017, 2016 and 2015 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 2017 are excluded from the calculation of diluted income (loss) per common share because they are anti-dilutive.

Page 8

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

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

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

	Three Months Ended March 31,
	2018		2017

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

Shares used in computing fully diluted net income (loss) per share		198,306,395		41,543,655

The effects of stock options and warrants to purchase the Company’s common stock, which were outstanding during the three months ended March 31, 2018, are excluded from the calculation of common stock equivents because they are out-of-the-money (their exercise prices are greater than the market price of the Company’s Common Stock as of March 31, 2018). The effects of common stock equivalents and potentially dilutive securities outstanding during the three months ended March 31, 2017, are excluded from the calculation of diluted loss per common share because they are anti-dilutive.

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

Revenue recognition and deferred revenue

The Company offers InsPro Enterprise ^TM on both a licensed and an ASP basis. An InsPro Enterprise software license entitles the purchaser a perpetual license to a copy of the InsPro Enterprise software installed at a single client location or hosted by the Company. Alternatively, 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 or post implementation of InsPro Enterprise for either an ASP or licensed client. Implementation services include InsPro Enterprise installation, configuration and modification of InsPro Enterprise functionality, client insurance plan set-up, client insurance document design and system documentation. Post implementation services include these same services to existing clients supporting their ongoing utilization of InsPro Enterprise.

The Company’s revenue is recognized under FASB ASC 606 (“ASC 606”).

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

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

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09” or ASC 606), which provides guidance for revenue recognition. ASC 606’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates under ASC 606 as compared to the previous revenue guidance. These estimates may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASC 606 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.

ASC 606 is effective for the Company for the fiscal year ending December 31, 2018, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We adopted ASC 606 effective January 1, 2018 to (i) all new contracts entered into after January 1, 2018 and (ii) all existing contracts for which all (or substantially all) of the revenue has not been recognized under legacy revenue guidance, using the modified retrospective transition method, which means ASC 606 has been applied to the Company’s 2018 financial statements and disclosures going forward, but that prior period financial statements and disclosures reflect the prior revenue recognition standard. The adoption of ASC 606 did not result in a change to the opening balance of accumulated deficit.

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

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

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

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

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

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

Effective August 18, 2015, the Company entered into a five year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated third party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective 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 materially breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation or seeks protection under bankruptcy during the term of the Reseller Agreement (each a “Refund Event”). Prior to ASC 606 we recognized Reseller Fee revenue whenever a portion of the Reseller Fee was no longer subject to refund as a result of a Refund Event. Under ASC 606, the Company believes the contractual specific refund amounts and time frames pertaining to a Refund Event represent separate performance obligations over the duration of the Reseller Agreement, which the Reseller Agreement has contractually specified the prices for each separate performance deliverable. Revenue recognition is deemed to be consistent under both ASC 606 and the previous standard.

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

March 31, 2018

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 March 31,
	2018		2017

Compensation, employee benefits and related taxes	$	1,753,933	$	1,920,423
Professional fees		1,585,905		1,914,984
Depreciation		40,437		88,149
Rent, utilities, telephone and communications		93,198		106,488
Other cost of revenues		94,052		78,925
	$	3,567,525	$	4,108,969

Selling, general and administrative expenses

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

	For the Three Months Ended March 31,
	2018		2017

Compensation, employee benefits and related taxes	$	839,213	$	1,132,958
Advertising and other marketing		4,988		8,735
Depreciation		16,764		34,789
Rent, utilities, telephone and communications		39,460		99,513
Professional fees		159,543		138,300
Other general and administrative		530,286		188,202
	$	1,590,254	$	1,602,497

Advertising and other marketing

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

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

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

Concentrations of credit risk

The Company maintains its cash and restricted cash in bank deposit accounts, which exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation (“FDIC”). At March 31, 2018, the Company had $4,724,110 of cash in United States bank deposits, of which $501,002 was federally insured and $4,223,108 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.

	March 31, 2018			December 31, 2017

Client #1		58	%		52	%
Client #2		12	%		10	%
Client #3		10	%		-

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 3 Months Ended March 31,
	2018			2017

Client #1		49	%		31	%
Client #2		14	%		20	%

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 March 31, 2018, the Company does not believe that it will incur a penalty in connection with the Company’s registration rights agreements. Accordingly, no liability in respect thereof was recorded as of March 31, 2018. See Note 4 - Stockholders Equity – Registration and Participation Rights.

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INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

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.

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

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (“ASU 2016-02”), which requires all leases with a term greater than 12 months to be recognized on the balance sheet, while lease expenses would continue to be recognized in the statement of operations in a manner similar to current accounting guidance. The new standard establishes a right-of-use model (ROU) asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. 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. The new standard is effective for us in the first quarter of 2019 and we do not plan to early adopt. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements. We believe our current lease for our Eddystone office, which was extended for a 1 year term that expires on January 31, 2019, would continue to be accounted for as an operating lease under the new standard. We may enter into a new lease for office space, which may have a term greater than 12 months, in the future.

In February 2018, the FASB issued ASU No. 2018-02 , Income Statement - Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220) (“ASU 2018-02”) , which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act"). ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2018-02 is effective for the Company at the beginning of fiscal year 2019 and early adoption is permitted. 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) (“ASU 2016-13”).” For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for the Company at the beginning of fiscal year 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 2016-13 on our consolidated financial statements.

Page 14

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

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

Liquidity

During the three months ended March 31, 2018, the Company’s net income was $928,744 and cash used in operations was $370,559. As of March 31, 2018, the Company had $4,569,844 of cash, working capital of $2,126,517 and the Company’s shareholder equity was $1,315,586. During 2016 and 2017 the Company implemented cost reduction initiatives, which resulted in the reduction of cost of revenue in 2018 as compared to 2017, and in 2017 as compared to 2016.

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

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	Useful Life (Years)	March 31, 2018			December 31, 2017
Computer equipment and software	3	$	4,653,791		$	4,590,221
Office equipment	4.6		145,229			145,228
Leasehold improvements	5.4		81,933			81,933
			4,880,953			4,817,382

Less accumulated depreciation			(4,604,590	)		(4,547,388	)

		$	276,363		$	269,994

See Note 5 – Capital Lease Obligations.

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

	For the Three Months Ended March 31,
	2018		2017

Depreciation included in cost of revenues	$	40,437	$	88,149
Depreciation included in selling, general and administrative		16,764		34,789
Total depreciation	$	57,201	$	122,938

Page 15

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

NOTE 3 – NOTES PAYABLE

Notes payable at March 31, 2018 and December 31, 2017, consist of two notes payable for insurance premium financing on one of the Company’s insurance policies. The first note commenced on May 3, 2017, 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, 2017 and ending on April 3, 2018. The second note commenced on September 28, 2017, has an annual interest rate of 8.99% and consists of 10 monthly payments of principal and interest of $4,920 per month commencing on September 28, 2017 and ending on July 28, 2018.

NOTE 4 – STOCKHOLDERS’ EQUITY

Common Stock

As of March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December 31, 2017, 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:

	March 31, 2018		December 31, 2017

Exercise of options issued and outstanding to purchase common stock		700,000		825,000
Issuance of common shares available under the 2010 Equity Compensation Plan		28,296,980		28,171,980
Exercise of warrants issued and outstanding to purchase common stock		-		120,000
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		500,000		500,000
Conversion of series B convertible preferred stock issued and outstanding into common stock		106,144,240		106,144,240
Exercise of warrants to purchase series B convertible preferred stock issued and outstanding and converted into common stock		64,200,000		65,000,000
Conversion of series C convertible preferred stock issued and outstanding into common stock		25,083,500		25,083,500

Total common stock reserved for issuance		250,459,720		251,379,720

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 Preferred Stock

As of March 31, 2018 and December 31, 2017, the Board has designated 3,437,500 shares of Series A Convertible Preferred Stock par value $0.001 per share (“Series A Preferred Stock”). As of March 31, 2018 and December 31, 2017, the Company had 1,276,750 shares of its Series A Preferred Stock issued and outstanding. As of March 31, 2018 and December 31, 2017, the Company has reserved 25,000 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.

Page 16

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

NOTE 4 – STOCKHOLDERS’ EQUITY (Continued)

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

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

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

Series B Preferred Stock

As of March 31, 2018 and December 31, 2017, the Board has designated 11,000,000 shares of Series B Preferred Stock. As of March 31, 2018 and December 31, 2017, the Company had 5,307,212 of its Series B Preferred Stock issued and outstanding. As of March 31, 2018 and December 31, 2017, the Company has reserved 3,250,000 shares of Series B Preferred Stock for the exercise of warrants issued and outstanding to purchase its Series B Preferred Stock.

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 March 31, 2018 and December 31, 2017, upon the liquidation, sale or merger of the Company, each share of Series B Preferred Stock is entitled to receive an amount equal to the greater of (A) a liquidation preference equal to the Series B Preferred Stock original issue price, or $15,921,636 in aggregate, subject to certain customary adjustments, or (B) the amount such share of Series B Preferred Stock would receive if it participated pari passu with the holders of Common Stock and preferred stock on an as-converted basis. The liquidation preference is calculated by taking the product of the issued and outstanding shares of Series B Preferred Stock times $3.00. Series B Preferred Stock is senior to Series A Preferred Stock, and junior to the Series C Preferred Stock, as it pertains to liquidation preferances.

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

Page 17

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

NOTE 4 – STOCKHOLDERS’ EQUITY (Continued)

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.

Series C Preferred Stock

As of March 31, 2018 and December 31, 2017, the Board has designated 4,000,000 shares of Series C Preferred Stock. As of March 31, 2018 and December 31, 2017, the Company had 1,254,175 of its Series C Preferred Stock issued and outstanding.

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

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

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

For so long as any shares of Series C Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series C Preferred Stock is required to approve (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 C 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 C Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series C Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series C Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series C Preferred Stock with an amount per share equal to two and a half (2.5) times the Series C Preferred Stock original issue price, or $6,270,875, in aggregate for all issued and outstanding Series C Preferred Stock.

Page 18

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

NOTE 4 – STOCKHOLDERS’ EQUITY (Continued)

Stock Options

During the three months ended March 31, 2018, options for 125,000 shares of Common stock, which were previously granted to a former executive of the Company, expired in accordance with the terms of such stock options.

As of March 31, 2018, there were 30,000,000 shares of our Common Stock authorized to be issued under the Company’s 2010 Equity Compensation Plan, of which 28,296,980 shares of our Common Stock remain available for future stock option grants.

The Company recorded compensation expense pertaining to employee stock options in the amount of $2,349 and $85,090 for the three months ended March 31, 2018 and 2017, respectively.

The value of equity compensation not yet expensed pertaining to unvested equity compensation for options to purchase common stock was $10,000 as of March 31, 2018, which will be recognized over a weighted average 2 years in the future.

A summary of the Company's outstanding stock options is as follows:

	Number			Weighted				Weighted
	Of Shares			Average		Weighted		Average		Aggregate
	Underlying			Exercise		Average		Remaining		Intrinsic
	Options			Price		Fair Value		Contractual Life		Value (1)
								(in years)
Outstanding at December 31, 2017		825,000		$	0.10	$	0.10		3.0	$	-

For the period ended March 31, 2018
Granted		-			-		-
Exercised		-			-		-
Expired		(125,000	)		0.10		0.04

Outstanding at March 31, 2018		700,000		$	0.10	$	0.05		2.7	$	-

Outstanding and exercisable at March 31, 2018		450,000		$	0.10	$	0.05		2.6	$	-

(1) The aggregate intrinsic value is based on the $0.065 closing price as of March 31, 2018, for the Company’s Common Stock.

Common Stock Warrants

During the three months ended March 31, 2018, warrants to purchase 120,000 shares of Common stock expired in accordance with the terms of such stock warrants.

Page 19

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

NOTE 4 – STOCKHOLDERS’ EQUITY (Continued)

A summary of the status of the Company's outstanding common stock warrants is as follows:

				Weighted
	Common			Average
	Stock			Exercise
	Warrants			Price

Outstanding and exercisable at December 31, 2017		120,000		$	0.15

For the period ended March 31, 2018
Issued		-			-
Exercised		-			-
Expired		(120,000	)		0.15
Outstanding and exercisable at March 31, 2018		-		$	-

Series A Preferred Stock Warrants

Outstanding warrants to purchase the Company’s Series A Preferred Stock at March 31, 2018, have a remaining contractual life of 4.4 years.

A summary of the status of the Company's outstanding Series A Preferred Stock warrants is as follows:

			Weighted
	Preferred		Average
	Stock		Exercise
	Warrants		Price

Outstanding and exercisable at December 31, 2017		25,000	$	4.00

For the period ended March 31, 2018
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding and exercisable at March 31, 2018		25,000	$	4.00

Series B Preferred Stock Warrants

During the three months ended March 31, 2018, warrants to purchase 40,000 shares of Series B Preferred Stock expired in accordance with the terms of such warrants.

Page 20

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

NOTE 4 – STOCKHOLDERS’ EQUITY (Continued)

Outstanding preferred stock warrants to purchase the Company’s Series B Preferred Stock at March 31, 2018 have a remaining contractual life of 1.1 years. A summary of the status of the Company's outstanding Series B Preferred Stock warrants is as follows:

				Weighted
	Preferred			Average
	Stock			Exercise
	Warrants			Price

Outstanding and exercisable at December 31, 2017		3,250,000		$	3.00

For the period ended March 31, 2018
Granted		-			-
Exercised		-			-
Expired		(40,000	)		3.00
Outstanding and exercisable at March 31, 2018		3,210,000		$	3.00

Registration and Participation Rights

As of March 31, 2018, the Company has not received a demand notice in connection with any of the Company’s various registration rights agreements.

NOTE 5 – CAPITAL LEASE OBLIGATIONS

The Company’s subsidiary, InsPro Technologies, LLC (“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:

	Useful Life (Years)	March 31, 2018			December 31, 2017
Computer equipment and software	3	$	1,656,731		$	1,656,731
Leasehold improvements	3		15,011			15,011

			1,671,742			1,671,742
Less accumulated depreciation			(1,497,493	)		(1,454,084	)
		$	174,249		$	217,658

Page 21

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018

NOTE 5 – CAPITAL LEASE OBLIGATIONS (Continued)

Future minimum payments required under capital leases at March 31, 2018, are as follows:

Nine months ending December 31, 2018	$	130,969
2019		84,168
2020		38,585
2021		2,322

Total future payments		256,044
Less amount representing interest		23,963

Present value of future minimum payments		232,081
Less current portion		144,787

Long-term portion	$	87,294

NOTE 6 – 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 $18,486 and $21,215 for the three months ended March 31, 2018 and 2017, respectively.

NOTE 7 – COMMITTMENTS AND CONTINGENCIES

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. On June 7, 2017, InsPro LLC and Baldwin Tower Office Building, LLC (“Landlord”), which is the new owner and landlord for the Company’s Eddystone office building, entered into a seventh amendment to the Lease Agreement whereby InsPro LLC and Landlord agreed to amend the Lease Agreement to extend the term through January 31, 2019 for 17,567 of rentable square feet at a monthly cost of $30,010 for the period February 1, 2018 through January 31, 2019.

Page 22

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018

NOTE 7 – COMMITTMENTS AND CONTINGENCIES (continued)

Future minimum payments required under operating leases and service agreements at March 31, 2018, are as follows:

Nine months ending December 31, 2018		503,607
2019		338,278
2020		38,926
thereafter		-

Total	$	880,811

The Company leases certain real and personal property under non-cancelable operating leases. Rent expense was $89,111 and $118,484 for the three months ended March 31, 2018 and 2017, respectively.

Mr. Robert Oakes resigned as an executive employee effective June 30, 2017. Pursuant to Mr. Oakes’ employment agreement, Mr. Oakes will be entitled to receive; (i) continuation of his $300,000 per year base salary for a period of 12 months in accordance with the Company's normal payroll practices, less any applicable income tax withholding required under federal or state law, and subject to Section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance issued there under, and (ii) continuation for a period of 18 months after the date of termination of the benefits under benefit plans extended from time to time by the Company to its senior executives. As of March 31, 2018, the Company recorded a severance accrual connection with Mr. Oakes termination in the amount of $87,261. Pursuant to Mr. Oakes’ employment agreement, he is subject to non-competition and non-solicitation covenants during the term of his employment agreement and for a period of one year following his termination.

Effective December 31, 2017, an executive’s employment was terminated by the Company. Pursuant to this executive’s employment agreement, the executive is subject to non-competition and non-solicitation covenants for a period of six months following his termination. As of March 31, 2018, the Company recorded a severance accrual connection with this executive’s termination in the amount of $51,923.

NOTE 8- INCOME TAXES

The Company has net operating loss carry forwards for federal income tax purposes of approximately $48,500,000 at March 31, 2018, the unused portion of which expires in years 2026 through 2038. The Company accounts for income taxes under Accounting Standards Codification 740, Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Internal Revenue Code Section 382 (“IRC 382”) places a limitation on the amount of taxable income that can be offset by carry forwards after a change in control (generally greater than a 50 percent change in ownership). The issuance of the Company’s Series A Preferred Stock on January 15, 2009 resulted in a change of control as defined under IRC 382.

Page 23

INSPRO TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018

NOTE 8- INCOME TAXES (Continued)

Components of income taxes were as follows:

	For the Three Months Ended March 31,
	2018		2017

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

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

	For the Three Months Ended March 31,
	2018			2017

U.S. statutory rate		21.0	%		35.0	%
State income taxes		8.0	%		6.5	%
Amortization/impairment of acquisition related assets		(0.1	)%		0.2	%
Stock based compensation		0.1	%		(5.5	)%
Other permanent differences		0.4	%		2.7	%
Valuation allowance		(20.1	)%		(38.9	)%
		9.3	%		0.0	%

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. The components of the net deferred tax assets for the periods ended March 31, 2018 and 2017 were as follows:

	March 31,
	2018			2017
Deferred tax assets:
Net operating loss carryforward	$	13,898,226		$	19,551,733
Depreciation		51,367			128,081
Compensation expense		72,094			102,599
Deferred revenue		525,915			593,621
Allowance for uncollectable accounts		100,379			-
Total deferred tax asset		14,647,981			20,376,034

Deferred tax liabilities		-			-
Net deferred tax asset		14,647,981			20,376,034
Less: valuation allowance		(14,647,981	)		(20,376,034	)
	$	-		$	-

The Company has fully reserved the deferred tax asset in excess of the deferred tax liabilities due to the limitation on taxable income that can be offset by net operating loss carry forwards in future periods under IRC section 382 as a result of changes in control and substantial uncertainty of the realization of any tax assets in future periods. The valuation allowance as of March 31, 2018 was decreased by $237,862 as compared to December 31, 2017.

On December 22, 2017 the Tax Cuts and Jobs Act (H.R. 1) was signed into law. This act includes, among other items, a permanent reduction to the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. The new bill reduced the blended tax rate for the Company from 38% to 29%.

Page 24

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.

Page 25

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 2018 and 2017 include the allowance for doubtful accounts, stock-based compensation, the useful lives and valuation of property and equipment, valuation of deferred tax assets, and deferred revenue. Actual results may differ from these estimates under different assumptions or conditions.

The Company offers InsPro Enterprise ^TM on both a licensed and an ASP basis. An InsPro Enterprise software license entitles the purchaser a perpetual license to a copy of the InsPro Enterprise software installed at a single client location or hosted by InsPro Technologies. Alternatively, 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 revenue is recognized under FASB ASC 606 (“ASC 606”).

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In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09” or ASC 606), which provides guidance for revenue recognition. ASC 606’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under ASC 606 as compared to the previous revenue guidance. These estimates may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASC 606 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.

ASC 606 was effective for the Company for the fiscal year ending December 31, 2018, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We adopted ASC 606 effective January 1, 2018 to (i) all new contracts entered into after January 1, 2018 and (ii) all existing contracts for which all (or substantially all) of the revenue has not been recognized under legacy revenue guidance, using the modified retrospective transition method, which means ASC 606 has been applied to the Company’s 2018 financial statements and disclosures going forward, but that prior period financial statements and disclosures reflect the prior revenue recognition standard. The adoption of ASC 606 did not result in a change to the opening balance of accumulated deficit.

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

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Effective August 18, 2015, the Company entered into a five year software and services reseller agreement (the “Reseller Agreement”) with an unaffiliated third party (the “Reseller”) whereby the Company granted the Reseller the exclusive right to market InsPro Enterprise to prospective 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 materially breaches the Reseller Agreement or the Company becomes insolvent, goes into liquidation or seeks protection under bankruptcy during the term of the Reseller Agreement (each a “Refund Event”). Prior to ASC 606 we recognized Reseller Fee revenue whenever a portion of the Reseller Fee was no longer subject to refund as a result of a Refund Event and at which time no portion of the Reseller Fee was subject to refund. Under ASC 606, the Company believes the contractual specific refund amounts and time frames pertaining to a Refund Event represent separate performance obligations over the duration of the Reseller Agreement, which the Reseller Agreement has contractually specified the prices for each separate performance deliverable. Revenue recognition is deemed to be consistent under both ASC 606 and the previous standard.

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

RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2018 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2017

Revenues

For the three months ended March 31, 2018 (“First Quarter 2018”) and for the three months ended March 31, 2017, (“First Quarter 2017”) our revenues include the following:

	For the Three Months Ended March 31,				Increase (Decrease)
	2018		2017		Dollars			Percentage

Professional services	$	3,770,341	$	2,798,251	$	972,090			34.7	%
ASP and hosting revenue		2,003,891		1,815,840		188,051			10.4	%
Maintenance revenue		382,518		432,675		(50,157	)		-11.6	%
Sale of equipment		23,797		-		23,797			100.0	%
Other revenue		7,200		18,312		(11,112	)		-60.7	%

Total	$	6,187,747	$	5,065,078	$	1,122,669			22.2	%

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In First Quarter 2018 our professional services revenue increased primarily as a result of higher implementation services provided to the Company’s largest client as measured by earned revenue. 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.

In First Quarter 2018 our ASP and hosting revenue increased as a result of increased fees from ongoing and recent implementations of InsPro Enterprise from several existing clients. ASP hosting service enables a client to either lease InsPro Enterprise software, paying only for that capacity required to support their business, or for a client to outsource the operation of their licensed InsPro Enterprise installation to the Company. ASP hosting clients’ access InsPro Enterprise installed on clients’ servers or on the Company’s servers located at a third party’s site.

In First Quarter 2018 our maintenance revenue decreased primarily due to a delay in the renewal of an existing client’s maintenance agreement.

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

In First Quarter 2018 other revenue decreased primarily due to reimbursements of office and administrative expenses pertaining to various agreements with related and unrelated parties pertaining to our former Radnor office, which ended in the First Quarter of 2017. Other revenue also includes renewal commissions received in connection with the Company’s former telesales call center and external agent produced agency business. In 2009 the Company ceased selling health and related products to individuals and families through its former non-employee agents.

Cost of Revenues

Our cost of revenues consisted of the following:

	For the Three Months Ended March 31,				Increase (Decrease)
	2018		2017		Dollars			Percentage

Compensation, employee benefits and related taxes	$	1,753,933	$	1,920,423	$	(166,490	)		-8.7	%
Professional fees		1,585,905		1,914,984		(329,079	)		-17.2	%
Depreciation		40,437		88,149		(47,712	)		-54.1	%
Rent, utilities, telephone and communications		93,198		106,488		(13,290	)		-12.5	%
Other cost of revenues		94,052		78,925		15,127			19.2	%

	$	3,567,525	$	4,108,969	$	(541,444	)		-13.2	%

In First Quarter 2018 our salaries, employee benefits and related taxes component of cost of revenues decreased as compared to First Quarter 2017 primarily as a result of decreased employee staffing.

In First Quarter 2018 our professional fees component of cost of revenues decreased as compared to First Quarter 2017 as a result of decreased utilization of several outside consulting firms, which were assisting us with modifications to InsPro Enterprise’s functionality and a client’s implementation of InsPro Enterprise ^TM .

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In First Quarter 2018 our depreciation expense component of cost of revenues decreased as compared to First Quarter 2017 as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for such assets.

In First Quarter 2018 our rent, utilities, telephone and communications component of cost of revenues decreased as compared to First Quarter 2017 primarily due to the elimination of our former Radnor office.

In First Quarter 2018 our other cost component of cost of revenues increased as compared to First Quarter 2017 due to the cost of computer equipment sold to a client in First Quarter 2018. 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 $2,620,222 in First Quarter 2018, as compared to a gross profit of $956,109 in First Quarter 2017. The results from operations in First Quarter 2018 were favorably impacted by higher professional services revenues combined with lower employee and IT consulting staffing as compared to First Quarter 2017 primarily as a result of the implementation of cost reduction initiatives implemented in 2017.

Selling, General and Administrative Expenses

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

	For the Three Months Ended March 31,				Increase (Decrease)
	2018		2017		Dollars			Percentage

Compensation, employee benefits and related taxes	$	839,213	$	1,132,958	$	(293,745	)		-25.9	%
Advertising and other marketing		4,988		8,735		(3,747	)		-42.9	%
Depreciation		16,764		34,789		(18,025	)		-51.8	%
Rent, utilities, telephone and communications		39,460		99,513		(60,053	)		-60.3	%
Professional fees		159,543		138,300		21,243			15.4	%
Other general and administrative		530,286		188,202		342,084			181.8	%

	$	1,590,254	$	1,602,497	$	(12,243	)		-0.8	%

First Quarter 2018 our salaries, employee benefits and related taxes component of cost of revenues decreased as compared to First Quarter 2017 primarily as a result of decreased employee staffing and severance expense, which was incurred in First Quarter 2017.

In First Quarter 2018 our advertising and marketing expense decreased as a result of an overall reduction in marketing activities.

In First Quarter 2018 our depreciation expense decreased as a result of certain assets having been fully depreciated in accordance with the original depreciation schedule for such assets.

In First Quarter 2018 our rent, utilities, telephone and communications expense decreased as compared to First Quarter 2017 primarily due to the elimination of our former Radnor office.

In First Quarter 2018 our professional fees increased as compared to First Quarter 2017 primarily due to employee recruiting expenses.

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In First Quarter 2018 our other general and administrative expenses increased as compared to First Quarter 2017 primarily due $334,460 of bad debt expense associated with receivables from a single client.

Operating income from operations before income taxes

As a result of the aforementioned factors, we reported income from operations of $1,029,968 in First Quarter 2018, as compared to net loss of $646,388 in First Quarter 2017.

Other income (expenses)

Gain on the sale of equipment in First Quarter 2017 is attributable to the sale of furniture and fixtures from the Company’s former Radnor office.

Interest expense is attributable to interest on the capital leases and note payable for premium financing on a portion of the Company’s insurance coverages.

Income tax expense

In First Quarter 2018 provision for income taxes consisted of $95,000 of Pennsylvania corporate income tax. The effective tax rate for First Quarter 2018 differed from the U.S. federal statutory rate primarily due to net operating losses carried forward from prior years (“NOLs”), which offset current federal income tax expense. In computing the Company’s state corporate income tax the Company’s state NOL’s are limited to 35% of the Company’s state income tax.

Net Income

As a result of these factors discussed above, we reported net income of $928,744, or $0.02 per share basic and $0.00 per share on a fully diluted basis, in First Quarter 2018, as compared to a net loss of $646,302, or ($0.02) per share on a basic and fully diluted basis in First Quarter 2017.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2018, we had a cash balance of $4,569,844 and working capital of $2,126,517.

Net cash used in operations was $370,559 in First Quarter 2018 as compared to net cash used in operations of $1,044,732 in First Quarter 2017. Impacting our cash flow from operations was our net income of $928,744 in First Quarter 2018 as compared to our net loss of $646,302 in First Quarter 2017 and:

Increase in accounts receivable of $2,234,227 in First Quarter 2018, which is primarily the result of increased billings to clients for professional services incurred in First Quarter 2018.

Decrease in prepaid expenses of $110,681 in First Quarter 2018, which is primarily the result of amortization of prepaid insurance and software maintenance.

Decrease in accounts payable of $272,596 in First Quarter 2018, which is primarily the result of payments of amounts to outside IT consulting firms that were incurred prior to 2018. Accounts payable as of March 31, 2018 was $1,212,108.

Decrease in accrued expenses of $129,911 in First Quarter 2018, which is primarily the result of the payment of accrued severance expense incurred in 2018.

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Increase in deferred revenue of $733,934 in First Quarter 2018, which is primarily the result of annual maintenance fees, which were not yet earned in First Quarter 2018.

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 $57,201 and $122,938 in First Quarter 2018 and First Quarter 2017, respectively.

Recorded stock-based compensation expense of $2,349 and $85,090 in First Quarter 2018 and First Quarter 2017, respectively.

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

Net cash used by investing activities in First Quarter 2018 was $8,843 as compared to $19,834 in First Quarter 2017.

Net cash used in financing activities in First Quarter 2018 was $68,293 as compared to $111,111 in First Quarter 2017.

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

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

Off-Balance Sheet Arrangements

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

Liquidity and Other Considerations

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures .

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

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

(b) Change in Internal Control over Financial Reporting.

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

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

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

Item 6.

Exhibits

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

* Filed herewith.

† Furnished herewith.

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SIGNATURES

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

Date: May 14, 2018	INSPRO TECHNOLOGIES CORPORATION

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

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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 †
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed herewith.

† Furnished herewith.

Page 35

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