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<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">As filed with the Securities and Exchange
Commission on December 31, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">Registration No. 333-</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>UNITED STATES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITIES AND EXCHANGE COMMISSION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Washington, D.C. 20549</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">________________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>FORM S-1</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">________________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>InsPro Technologies Corporation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Exact name of registrant as specified
in charter)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 36%; padding-right: 2.35pt; padding-left: 2.35pt; font-weight: bold; text-align: center">Delaware</TD>
    <TD STYLE="width: 33%; padding-right: 2.35pt; padding-left: 2.35pt; font-weight: bold; text-align: center">6411</TD>
    <TD STYLE="width: 31%; padding-right: 2.35pt; padding-left: 2.35pt; font-weight: bold; text-align: center">98-0438502</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 2.35pt; padding-left: 2.35pt; text-align: center">(State or Other Jurisdiction of</TD>
    <TD STYLE="padding-right: 2.35pt; padding-left: 2.35pt; text-align: center">(Primary Standard Industrial</TD>
    <TD STYLE="padding-right: 2.35pt; padding-left: 2.35pt; text-align: center">(I.R.S. Employer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 2.35pt; padding-left: 2.35pt; text-align: center">Incorporation or Organization)</TD>
    <TD STYLE="padding-right: 2.35pt; padding-left: 2.35pt; text-align: center">Classification Code Number)</TD>
    <TD STYLE="padding-right: 2.35pt; padding-left: 2.35pt; text-align: center">Identification No.)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>150 N. Radnor-Chester Road</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Suite B-101</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Radnor, Pennsylvania 19087</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.45pt"><B>(484) 654-2200</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 2.25pt; text-align: center; text-indent: 0.45pt">(Address,
including zip code, and Telephone Number, including area code of Registrant&rsquo;s Principal Executive Offices)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">________________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Anthony R. Verdi</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Chief Executive Officer, Chief Financial
Officer and Chief Operating Officer</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>InsPro Technologies Corporation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>150 N. Radnor-Chester Road</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Suite B-101</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Radnor, Pennsylvania 19087</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(484) 654-2200</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Name, Address, including zip code and
Telephone Number, including area code of Agent for Service)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.2in"><B>Copy to:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>James W. McKenzie, Jr., Esq.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Morgan, Lewis &amp; Bockius LLP</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>1701 Market Street</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Philadelphia, Pennsylvania 19103</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(215) 963-5000</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">________________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>Approximate Date
of Proposed Sale to the Public: </B>As soon as practicable after the effective date of this registration statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If any Securities
being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box: <FONT STYLE="font-family: Wingdings 2">&pound;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
<FONT STYLE="font-family: Wingdings 2">&pound;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. <FONT STYLE="font-family: Wingdings 2">&pound;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. <FONT STYLE="font-family: Wingdings 2">&pound;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">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 the definitions of &ldquo;large accelerated filer,&rdquo; &ldquo;accelerated filer&rdquo; and &ldquo;smaller reporting
company&rdquo; in Rule 12b-2 of the Exchange Act. (Check one)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 23%; padding-right: 2.35pt; padding-left: 2.35pt; text-align: center"><FONT STYLE="font-size: 10pt">Large
    Accelerated filer <FONT STYLE="font-family: Wingdings 2">&pound;</FONT></FONT></TD>
    <TD STYLE="width: 23%; padding-right: 2.35pt; padding-left: 2.35pt; text-align: center"><FONT STYLE="font-size: 10pt">Accelerated
    filer <FONT STYLE="font-family: Wingdings 2">&pound;</FONT></FONT></TD>
    <TD STYLE="width: 28%; padding-right: 2.35pt; padding-left: 2.35pt"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Non-accelerated filer <FONT STYLE="font-family: Wingdings 2">&pound;</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Do not check if a smaller reporting
        company)</P></TD>
    <TD STYLE="width: 26%; padding-right: 2.35pt; padding-left: 8.75pt; text-align: center"><FONT STYLE="font-size: 10pt">Smaller
    reporting company <FONT STYLE="font-family: Wingdings 2">R</FONT></FONT></TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD COLSPAN="3" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">CALCULATION OF REGISTRATION
    FEE</TD></TR>
<TR>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Title of Each Class of Securities
    To Be Registered</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Proposed
    Maximum Aggregate Offering Price ($)</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Amount of Registration Fee ($)</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(1)</B></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 6pt; padding-left: 5.4pt">Series B Convertible Preferred Stock, par value
    $0.001 per share</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;(2)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 6pt; padding-left: 5.4pt">Warrants to Purchase Shares of Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;(3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 6pt; padding-left: 5.4pt">Units Consisting of 333 Shares of Series B Convertible
    Preferred Stock and a Five-Year Warrant to Purchase 3,330 Shares of Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 6pt; padding-left: 5.4pt">Common Stock issuable upon exercise of the Warrants</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;(4)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 6pt; padding-left: 5.4pt">Common Stock issuable upon the conversion of the
    Series B Convertible Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">&mdash;(5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 6pt; padding-left: 5.4pt"><FONT STYLE="font-size: 10pt">&#9;<B>Total Registration
    Fee:</B></FONT></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$2,500,000</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: right">$341.00&nbsp;</TD></TR>
</TABLE>



<HR SIZE="1" NOSHADE ALIGN="LEFT" STYLE="width: 26%; color: black">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1) Estimated solely for purposes of calculating the registration
fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(2) Estimated solely for purposes of calculating the registration
fee in accordance with Rule 457(i) under the Securities Act of 1933, as amended.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(3) Pursuant to Rule 457(g), no separate registration fee is
required for the warrants offered hereby because they are being registered on the same registration statement as the common stock
underlying the warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">(4) Pursuant to Rule 416, the securities being
registered hereunder include such indeterminate number of additional shares of common stock as may be issuable upon exercise of
warrants registered hereunder as a result of stock splits, stock dividends, or similar transactions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">(5) Pursuant to Rule 457(i), no separate registration
fee is required for the common stock underlying the convertible preferred stock because the common stock is being registered on
the same registration statement as the convertible preferred stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Pursuant to Rule 429 under the Securities
Act of 1933, the prospectus included in this Registration Statement is a combined prospectus and also relates to (i) 33,550,000
shares of common stock previously registered under the Registrant&rsquo;s Registration Statement on Form SB-2 (File No. 333-133182);
(ii) 6,050,000 shares of common stock previously registered under the Registrant&rsquo;s Registration Statement on Form SB-2 (File
No. 333-142556), (iii) 1,089,913 shares of common stock previously registered under the Registrant&rsquo;s Registration Statement
on Form SB-2 on Form S-1 (File No. 333-149015), and (iv) 5,000 units, 1,250,000 shares of Series A Convertible Preferred Stock
and warrants to purchase 25,000,000 shares of common stock previously registered under the Registrant&rsquo;s Registration Statement
on Form S-1 (File No. 333-162712). Accordingly, this Registration Statement, which is a new registration statement, also constitutes
Post-Effective Amendment No. 2 to Registration Statement No. 333-133182, Post-Effective Amendment No. 2 to Registration Statement
No. 333-142556, Post-Effective Amendment No. 2 to Registration Statement No. 333-149015 and Post-Effective Amendment No. 1 to
Registration Statement No. 333-162712, which post-effective amendments shall hereafter become effective concurrently with the
effectiveness of this Registration Statement and in accordance with Section 8(c) of the Securities Act of 1933. If securities
previously registered under Registration Statement No. 333-133182, Registration Statement No. 333-142556, Registration Statement
No. 333-149015 and Registration Statement No. 333-162712 are offered and sold before the effective date of this Registration Statement,
the amount of previously registered securities so sold will not be included in the prospectus hereunder.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Explanatory Note</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Technologies
Corporation (the &ldquo;Company&rdquo;) previously filed a Registration Statement on Form SB-2 (File No. 333-133 182) with the
U.S. Securities and Exchange Commission (the &ldquo;Commission&rdquo;) on April 10, 2006, which was declared effective on July
7, 2006 (the &ldquo;2006 Prior Registration Statement&rdquo;). The 2006 Prior Registration Statement registered up to 33,550,000
shares of our common stock for resale by the selling stockholders named therein, including 8,650,000 shares of our common stock
issuable upon the exercise of warrants held by such selling stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company previously
filed a Registration Statement on Form SB-2 (File No. 333-142556) with the Commission on May 2, 2007, which was declared effective
on June 1, 2007 (the &ldquo;2007 Prior Registration Statement&rdquo;). The 2007 Prior Registration Statement registered up to
6,050,000 shares of our common stock for resale by the selling stockholders named therein, including 2,000,000 shares of our common
stock issuable upon the exercise of warrants held by such selling stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company previously
filed a Registration Statement on Form SB-2 on Form S-l (File No. 333-149015) with the Commission on February 1, 2008, which was
declared effective on April 22, 2008 (the &ldquo;2008 Prior Registration Statement&rdquo;). The 2008 Prior Registration Statement
registered up to 739,913 shares of our common stock for resale by the selling stockholders named therein, including 350,000 shares
of our common stock issuable upon the exercise of warrants held by such selling stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company previously
filed a Registration Statement on Form S-l (File No. 333-162712) with the Commission on January 14, 2010, which was declared effective
on January 22, 2010 (the &ldquo;2010 Prior Registration Statement&rdquo;, and together with the 2006 Prior Registration Statement,
2007 Prior Registration Statement and 2008 Prior Registration Statement, the &ldquo;Prior Registration Statements&rdquo;). The
2010 Prior Registration Statement registered up to 5,000 units, 1,250,000 shares of Series A Convertible Preferred Stock and warrants
to purchase 25,000,000 shares of common stock. Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included
in the 2010 Prior Registration Statement was a combined prospectus and also related to relates to 33,550,000 shares of common
stock registered under the 2006 Prior Registration Statement, 6,050,000 shares of common stock registered under the 2007 Prior
Registration Statement and 1,089,913 shares of common stock registered under the 2008 Prior Registration Statement. Accordingly,
the 2010 Prior Registration Statement also constituted Post-Effective Amendment No. 1 to the 2006 Prior Registration Statement,
Post-Effective Amendment No. 1 to the 2007 Prior Registration Statement and Post-Effective Amendment No. 1 to the 2008 Prior Registration
Statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to Rule 429
under the Securities Act of 1933, the prospectus included in this Registration Statement is also a combined prospectus and also
relates to 33,550,000 shares of common stock registered under the 2006 Prior Registration Statement, 6,050,000 shares of common
stock registered under the 2007 Prior Registration Statement, 1,089,913 shares of common stock registered under the 2008 Prior
Registration Statement, and the 5,000 units, 1,250,000 shares of Series A Convertible Preferred Stock and warrants to purchase
25,000,000 shares of common stock registered under the 2010 Prior Registration Statement. Accordingly, this Registration Statement,
which is a new registration statement, also constitutes Post-Effective Amendment No. 2 to the 2006 Prior Registration Statement,
Post-Effective Amendment No. 2 to the 2007 Prior Registration Statement, Post-Effective Amendment No. 2 to the 2008 Prior Registration
Statement and Post-Effective Amendment No. 1 to the 2010 Prior Registration Statement and is being filed to, among other things:
(i) include audited financial statements for our fiscal year ended December 31, 2011 and to reflect additional information disclosed
in our Annual Report on Form 10-K (the &ldquo;Annual Report&rdquo;) for our fiscal year ended December 31, 2011, filed with the
Commission on March 31, 2012; (ii) include unaudited interim financial statements for our three and nine months ended September
30, 2012 and to reflect additional information disclosed in our Quarterly Reports on Form l0-Q and our Current Reports on Form
8-K filed with the Commission subsequent to our Annual Report.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Accordingly, this
Registration Statement on Form S-l (i) carries forward from the Prior Registration Statements an aggregate of (A) 40,689,913 shares
of our common stock, which includes 11,000,000 shares of our common stock issuable upon the exercise of warrants, held by certain
of the named selling stockholders, and (B) 5,000 units, 1,250,000 shares of our Series A Convertible Preferred Stock and 25,000,000
warrants to purchase shares of our common stock, and (ii) registers an additional 2,500 Units, 832,500 shares of our Series B
Convertible Preferred Stock and warrants to purchase 8,325,000 shares of our common stock which have not previously been registered.
All filing fees payable in connection with the initial filing of the Prior Registration Statements were previously paid at the
time of the initial filing of the Prior Registration Statements. A registration fee of $341.00 in respect of the 832,500 shares
of our Series B Convertible Preferred Stock and warrants to purchase 8,325,000 shares of our common stock being registered in
this Registration Statement on Form S-l is being paid concurrently with the filing of this Registration Statement on Form S-l.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; color: red">The information in this prospectus
is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; color: red">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">PRELIMINARY PROSPECTUS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Subject to Completion&#9;December 31, 2012</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><IMG SRC="image_001.jpg" ALT="" STYLE="height:
87px; width: 199px"><BR>
INSPRO TECHNOLOGIES CORPORATION</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Up to 2,500 Units, 832,500 Shares
of Preferred Stock and<BR>
Warrants to Purchase 8,325,000 Shares of Common Stock<BR>
Issuable Upon Exercise of Rights to Subscribe for such Shares and Warrants</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are distributing,
at no charge to the holders of our capital stock, non-transferable subscription rights to subscribe for units, which we refer
to throughout this prospectus as Units, consisting of 333 shares of our Series B Convertible Preferred Stock and a five-year warrant
to purchase 3,330 additional shares of our common stock at an exercise price of $0.15 per share. Our stockholders will receive
one subscription right for every 53,155 shares of our common stock, 2,660 shares of our Series A Convertible Preferred Stock held
and 2,665 shares of our Series B Convertible Preferred Stock held of record as of 5:00 p.m., New York City time, on ___________,
2013, the record date. Pursuant to the terms of this offering, the rights may only be exercised for a maximum of 2,500 Units,
or $2.5 million of gross subscription proceeds.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each subscription
right entitles the holder to subscribe for one Unit at the subscription price of $999.00 per Unit, which we refer to as the basic
subscription right. In addition, rights holders who fully exercise their basic subscription rights will be entitled, subject to
limitations, to subscribe for additional Units that remain unsubscribed as a result of any unexercised basic subscription rights,
which we refer to as the over-subscription right, at the subscription price of $999.00 per Unit.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There is no minimum
number of Units you must purchase, but you may not purchase fractional Units. When determining the number of subscription rights
you will receive, divide the number of shares of our common stock you own by 53,155, the number of shares of our Series A Convertible
Preferred Stock you own by 2,660 and the number of shares of our Series B Convertible Preferred Stock you own by 2,665 and round
down the sum of those amounts to the next whole number. For example, if you own 100,000 shares of our common stock, 10,000 shares
of our Series A Convertible Preferred Stock and 10,000 shares of our Series B Convertible Preferred Stock, you will receive nine
subscription rights (100,000 shares of common stock divided by 53,155 = 1.88, 10,000 shares of Series A Convertible Preferred
Stock divided by 2,660 = 3.76, 10,000 shares of Series B Convertible Preferred Stock divided by 2,665 = 3.77, which sum = 9.41,
rounded down to nine (9) subscription rights, the next whole number), which will entitle you to subscribe for up to nine Units
under your basic subscription privilege.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This rights offering
was designed to give all of the holders of our capital stock the opportunity to participate in an equity investment in InsPro
Technologies Corporation on substantially the same economic terms as our last private placement in November 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The subscription rights
will expire if they are not exercised by 5:00 p.m., New York City time, on _________, 2013, unless we extend the rights offering
period. Our board of directors may cancel the rights offering at any time prior to the expiration of the rights offering for any
reason and may extend or amend the rights offering for any reason. In the event we cancel the rights offering, all subscription
payments received by us will be returned, without interest or penalty, as soon as practicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The subscription rights
may not be sold, transferred or assigned, and will not be listed for trading on any stock exchange or on the Over-the-Counter
Bulletin Board, the OTCBB.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You should carefully
consider whether to exercise your subscription rights before the expiration date. All exercises of subscription rights are irrevocable.
This is not an underwritten offering. The Units are being offered directly by us without the services of an underwriter or selling
agent. Our board of directors is making no recommendation regarding your exercise of the subscription rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our common stock is
quoted on the OTCBB under the symbol &ldquo;ITCC.OB.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The average of the
bid and asked prices of our common stock on the OTCBB on December 28, 2012 was $0.075 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE SECTION ENTITLED &ldquo;RISK FACTORS&rdquo; BEGINNING ON
PAGE 18.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The date of this prospectus is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,&nbsp;2013</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.75pt; text-align: center"><FONT STYLE="text-transform: uppercase"><B>Table
of Contents</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.75pt; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.75pt; text-align: right"><B>Page</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 5.75pt; text-align: right">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 95%">CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS</TD>
    <TD STYLE="width: 5%; text-align: right">7</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING</TD>
    <TD STYLE="text-align: right">8</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>PROSPECTUS SUMMARY</TD>
    <TD STYLE="text-align: right">15</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>RISK FACTORS</TD>
    <TD STYLE="text-align: right">18</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>THE RIGHTS OFFERING</TD>
    <TD STYLE="text-align: right">28</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>USE OF PROCEEDS</TD>
    <TD STYLE="text-align: right">36</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>DILUTION</TD>
    <TD STYLE="text-align: right">36</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>CAPITALIZATION &nbsp;</TD>
    <TD STYLE="text-align: right">37</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>DESCRIPTION OF SECURITIES</TD>
    <TD STYLE="text-align: right">37</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS</TD>
    <TD STYLE="text-align: right">39</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>BUSINESS &nbsp;</TD>
    <TD STYLE="text-align: right">40</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION</TD>
    <TD STYLE="text-align: right">44</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS</TD>
    <TD STYLE="text-align: right">55</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>EXECUTIVE COMPENSATION</TD>
    <TD STYLE="text-align: right">58</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</TD>
    <TD STYLE="text-align: right">63</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS</TD>
    <TD STYLE="text-align: right">66</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>PLAN OF DISTRIBUTION</TD>
    <TD STYLE="text-align: right">67</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS</TD>
    <TD STYLE="text-align: right">67</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>EXPERTS &nbsp;</TD>
    <TD STYLE="text-align: right">73</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>TRANSFER AGENT AND REGISTRAR</TD>
    <TD STYLE="text-align: right">73</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>LEGAL MATTERS</TD>
    <TD STYLE="text-align: right">73</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>WHERE YOU CAN FIND MORE INFORMATION</TD>
    <TD STYLE="text-align: right">73</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES</TD>
    <TD STYLE="text-align: right">73</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>FINANCIAL STATEMENTS</TD>
    <TD STYLE="text-align: right">F-1</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5in; text-transform: uppercase; text-indent: -0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You should rely only
on the information contained in this prospectus. We have not authorized anyone to provide you with information different from
the information contained in this prospectus. We will not make an offer to sell these securities in any jurisdiction where offers
and sales are not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus,
regardless of when this prospectus is delivered or when any sale of our common stock occurs. All dollar amounts in this prospectus
are in U.S. dollars unless otherwise stated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In this prospectus,
unless the context specifically indicates otherwise, all references to &ldquo;the Company,&rdquo; &ldquo;we,&rdquo; &ldquo;us,&rdquo;
and &ldquo;our&rdquo; refer to InsPro Technologies Corporation and its subsidiaries.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Certain of the statements
contained in this prospectus, including in the sections entitled &ldquo;Questions and Answers About the Rights Offering,&rdquo;
&ldquo;Prospectus Summary,&rdquo; &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations,&rdquo;
&ldquo;Business&rdquo; and elsewhere in this report are &ldquo;forward-looking statements&rdquo; 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&rsquo;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&rsquo;s views with respect to future financial and operating results and costs
associated with the Company&rsquo;s operations and other similar statements. Various factors, including competitive pressures,
market interest rates, regulatory changes, customer defaults or insolvencies, litigation, acquisition of businesses that do not
perform as we expect or that are difficult for us to integrate or control, adverse resolution of any contract or other disputes
with customers, could cause actual outcomes and results to differ materially from those described in forward-looking statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The words &ldquo;may,&rdquo;
&ldquo;will,&rdquo; &ldquo;expect,&rdquo; &ldquo;intend,&rdquo; &ldquo;anticipate,&rdquo; &ldquo;estimate,&rdquo; &ldquo;believe,&rdquo;
&ldquo;continue&rdquo; 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 prospectus, 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 prospectus 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">QUESTIONS AND ANSWERS ABOUT THE RIGHTS
OFFERING</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following are
examples of what we anticipate will be common questions about the rights offering. The answers are based on selected information
included elsewhere in this prospectus. The following questions and answers do not contain all of the information that may be important
to you and may not address all of the questions that you may have about the rights offering. This prospectus contains more detailed
descriptions of the terms and conditions of the rights offering and provides additional information about us and our business,
including potential risks related to the rights offering, the Units, and our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">What is the rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are distributing,
at no charge, to holders of our shares of capital stock, non-transferable subscription rights to subscribe for Units consisting
of 333 shares of our Series B Convertible Preferred Stock and a five-year warrant to purchase 3,330 additional shares of our common
stock at an exercise price of $0.15 per share. You will receive one subscription right for every 53,155 shares of our common stock,
2,660 shares of Series A Convertible Preferred Stock and 2,665 shares of Series B Convertible Preferred Stock held of record by
you as of 5:00 p.m., New York City time, on _________, 2013, the record date. Each subscription right entitles the holder to a
basic subscription right and an over-subscription privilege, which are described below. The shares of preferred stock and the
warrant to be issued as components of the Units in the rights offering do not currently trade on the OTCBB or on any other exchange,
and are only transferable to the extent permitted in the instruments governing such securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">What is the basic subscription right?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The basic subscription
right gives our stockholders the opportunity to purchase Units at a subscription price of $999.00 per Unit for each 53,155 shares
of common stock, 2,660 shares of Series A Convertible Preferred Stock and 2,665 shares of Series B Convertible Preferred Stock
you own. We have granted to you, as a stockholder of record on the record date, one subscription right for each 53,155 shares
of our common stock, 2,660 shares of Series A Convertible Preferred Stock and 2,665 shares of Series B Convertible Preferred Stock
you owned at that time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There is no minimum
number of Units you must purchase, but you may not purchase fractional Units. When determining the number of subscription rights
you will receive, divide the number of shares of our common stock you own by 53,155, the number of shares of Series A Convertible
Preferred Stock you own by 2,660 and the number of shares of Series B Convertible Preferred Stock you own by 2,665, and round
down the sum of those amounts to the next whole number. For example, if you own 100,000 shares of our common stock, 10,000 shares
of our Series A Convertible Preferred Stock and 10,000 shares of our Series B Convertible Preferred Stock, you will receive nine
subscription rights (100,000 shares of common stock divided by 53,155 = 1.88, 10,000 shares of Series A Convertible Preferred
Stock divided by 2,660 = 3.76, 10,000 shares of Series B Convertible Preferred Stock divided by 2,665 = 3.77, which sum = 9.41,
rounded down to nine (9) subscription rights, the next whole number), which will entitle you to subscribe for up to nine Units
under your basic subscription privilege.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You may exercise all
or a portion of your basic subscription right, or you may choose not to exercise any subscription rights at all. However, if you
exercise less than your full basic subscription right, you will not be entitled to purchase shares under your over-subscription
privilege.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you hold an InsPro
Technologies Corporation stock certificate, the number of Units you may purchase pursuant to your basic subscription right is
indicated on the enclosed rights certificate. If you hold your shares in the name of a broker, dealer, custodian bank or other
nominee who uses the services of the Depository Trust Company (DTC), you will not receive a rights certificate. Instead, DTC will
issue one subscription right to your nominee record holder for each 53,155 shares of our common stock, 2,660 shares of Series
A Convertible Preferred Stock and 2,665 shares of Series B Convertible Preferred Stock that you own at the record date. If you
are not contacted by your nominee, you should contact your nominee as soon as possible.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">What is the over-subscription privilege?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event that
you purchase all of the Units available to you pursuant to your basic subscription right, you may also choose to purchase any
Units that are not purchased by our other stockholders through the exercise of their basic subscription rights. You should indicate
on your rights certificate, or the form provided by your nominee if your shares are held in the name of a nominee, how many additional
Units you would like to purchase pursuant to your over-subscription privilege.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If sufficient Units
are available, we will seek to honor your over-subscription request in full. If, however, over-subscription requests exceed the
number of Units available, we will allocate the available Units pro rata among the stockholders exercising the over-subscription
privilege in proportion to the number of shares of capital stock owned by such stockholder on the record date, relative to the
number of shares owned on the record date by all stockholders exercising the over-subscription privilege. If this pro rata allocation
results in any stockholder receiving a greater number of Units than the stockholder subscribed for pursuant to the exercise of
the over-subscription privilege, then such stockholder will be allocated only that number of Units for which the stockholder oversubscribed,
and the remaining Units will be allocated among all other stockholders exercising the over-subscription privilege on the same
pro rata basis described above. The proration process will be repeated until all Units have been allocated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In order to properly
exercise your over-subscription privilege, you must deliver the subscription payment related to your over-subscription privilege
prior to the expiration of the rights offering. Because we will not know the total number of unsubscribed Units prior to the expiration
of the rights offering, if you wish to maximize the number of Units you purchase pursuant to your over-subscription privilege,
you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of Units that may
be available to you (i.e., for the maximum number of Units available to you, assuming you exercise all of your basic subscription
rights and are allotted the full amount of your over-subscription). See &ldquo;The Rights Offering &mdash; The Subscription Rights
&mdash; Over-Subscription Privilege.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any excess subscription
payments received by us will be returned, without interest or penalty, as soon as practicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Why are we conducting the rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are conducting
the rights offering for the primary purpose of providing all of the holders of our capital stock the opportunity to participate
in an equity investment in InsPro Technologies Corporation on substantially the same economic terms as our last private placement
in November 2012 and secondarily of raising equity capital to improve our capital position, to inject additional capital into
InsPro Technologies Corporation and to retain the remainder of any proceeds at InsPro Technologies Corporation for general corporate
purposes. See &ldquo;Use of Proceeds.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This rights offering,
including the composition and price of the Units, was designed to give all of the holders of our capital stock the opportunity
to participate in an equity investment in InsPro Technologies Corporation on substantially the same economic terms as our last
private placement in November 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">How was the $999.00 per Unit subscription price
determined?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The $999.00 per Unit
subscription price was determined by our board of directors based on the per share value of the Series B Convertible Preferred
Stock and warrants (considered in the aggregate) purchased by investors in our last private placement in November 2012. In November
2012, we sold units, consisting of one share of our Series B Convertible Preferred Stock (each share of which is convertible,
at the sole option of the holder, into 20 shares of our common stock) and one five-year warrant to purchase 10 shares of our common
stock, at a per unit price of $3.00. We sold a total of 499,999 units in that offering for an aggregate purchase price of $1.5
million.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In determining the
subscription price, our board of directors considered the overall economic value offered to investors in InsPro Technologies Corporation
in the last private placement. If an investor had invested in the last private placement, for every $999.00 invested, such investor
would have received 333 shares of Series B Convertible Preferred Stock and warrants to purchase 3,330 additional shares of our
common stock at an exercise price of $0.15 per share. As a result, the Units offered in this rights offering consist of 333 shares
of our Series B Convertible Preferred Stock and a warrant to purchase 3,330 shares of our common stock at a price per Unit of
$999.00.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We did not seek or
obtain an opinion of financial advisors in establishing the subscription price. The subscription price will not necessarily be
related to our book value, tangible book value, net worth or any other established criteria of fair value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">What are the material terms of the Series B Convertible
Preferred Stock offered in this rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each share of Series
B Convertible Preferred Stock offered in this rights offering is convertible, at the sole discretion of each holder of preferred
stock, into 20 shares of common stock, subject to certain adjustments. The holders of shares of our Series B Convertible Preferred
Stock are entitled to vote, with respect to any question upon which holders of our common stock are entitled to vote, together
with the holders of common stock as one class on an as-converted basis. At such time, if any, as our board of directors declares
a dividend or distribution on the common stock, the holders of preferred stock shall be entitled to receive, for each share of
Series B Convertible Preferred Stock held by them, a dividend or distribution in an amount equal to what such holder of preferred
stock would receive if their shares were converted into shares of common stock. We do not currently intend to pay any cash dividends
to the holders of shares of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, upon
the liquidation, sale or merger of InsPro Technologies Corporation, each share of our Series B Convertible Preferred Stock is
entitled to receive an amount equal to the greater of (A) a liquidation preference equal to the preferred stock original issue
price, subject to certain customary adjustments, or (ii) the amount such preferred stock would receive if it participated pari
passu with the holders of our common stock on an as-converted basis. For so long as any shares of Series B Convertible Preferred
Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of preferred stock is required
to approve (Y) any amendment to our certificate of incorporation or bylaws that would adversely alter the voting powers, preferences
or special rights of the Series B Convertible Preferred Stock or (Z) any amendment to our certificate of incorporation to create
any shares of capital stock that rank senior to the Series B Convertible Preferred Stock. In addition to the voting rights described
above, for so long as 1,000,000 shares of Series B Convertible Preferred Stock are outstanding, the vote or consent of the holders
of at least two-thirds of the preferred stock is required to effect or validate any merger, sale of substantially all of the assets
of InsPro Technologies Corporation or other fundamental transaction, unless such transaction, when consummated, will provide the
holders of preferred stock with an amount per share equal to the preferred stock original issue price plus any declared but unpaid
dividends.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">What are the material terms of the warrants offered
in this rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The warrants that
we are offering in this rights offering are in substantially similar form to those warrants purchased by investors in the last
private placement in November 2012. Each warrant issued as a component of the Units will be a five-year warrant to purchase 3,330
shares of our common stock at an exercise price of $0.15 per share, subject to our right to call the warrant under certain conditions.
The warrants include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per share during
the first two years following the date of issuance of the warrants, subject to customary exceptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Am I required to exercise all of the subscription
rights I receive in the rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No. You may exercise
any number of your subscription rights, or you may choose not to exercise any subscription rights. If you do not exercise any
subscription rights, the number of shares of our common stock you own will not change. However, if you choose not to exercise
your subscription rights, your ownership interest in InsPro Technologies Corporation may be diluted by other stockholder purchases
(to the extent we receive any subscriptions in this rights offering). In addition, if you do not exercise your basic subscription
right in full, you will not be entitled to participate in the over-subscription privilege. See &ldquo;Risk Factors &mdash; If
you do not exercise your subscription rights, your percentage ownership in InsPro Technologies Corporation will be diluted.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">How soon must I act to exercise my subscription
rights?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you received a
rights certificate and elect to exercise any or all of your subscription rights, we must receive your completed and signed rights
certificate and payments prior to the expiration of the rights offering, which is _________, 2013, at 5:00 p.m., Eastern Time.
If you hold your shares in the name of a broker, dealer, custodian bank or other nominee, your nominee may establish a deadline
prior to 5:00 p.m. Eastern Time, on _________, 2013 by which you must provide it with your instructions to exercise your subscription
rights. Although our board of directors may, in its discretion, extend the expiration of the rights offering, we currently do
not intend to do so. Our board of directors may cancel or amend the rights offering at any time. In the event that the rights
offering is cancelled, all subscription payments received will be returned, without interest or penalty, as soon as practicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although we will make
reasonable attempts to provide this prospectus to our stockholders, the rights offering and all subscription rights will expire
at 5:00 p.m., Eastern Time on _________, 2013, whether or not we have been able to locate each person entitled to subscription
rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">May I transfer my subscription rights?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No. You may not sell,
transfer or assign your subscription rights to anyone. Subscription rights will not be listed for trading on the OTCBB or any
other stock exchange or market. Rights certificates may only be completed by the stockholder who receives the certificate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Are we requiring a minimum subscription to complete
the rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No. There is no individual
minimum purchase requirement in the rights offering and we are not requiring a minimum subscription to complete the rights offering.
However, because we are not issuing fractional Units, you must own at least 53,155 shares of our common stock, 2,660 shares of
our Series A Convertible Preferred Stock or 2,665 shares of our Series B Convertible Preferred Stock as of the record date in
order to subscribe for one Unit in the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, our board
of directors reserves the right to cancel the rights offering for any reason.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Can the board of directors cancel, amend or extend
the rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Yes. Our board of
directors may decide to cancel, amend or terminate the rights offering at any time before the expiration of the rights offering
and for any reason. If our board of directors cancels or terminates the rights offering, any money received from subscribing stockholders
will be returned, without interest or penalty, as soon as practicable. We also reserve the right to amend or modify the terms
of the rights offering. We further have the right to extend the rights offering and the time for exercising your subscription
rights, although we do not presently intend to do so.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Has our board of directors made a recommendation
to our stockholders regarding the rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No. Our board of directors
is making no recommendation regarding your exercise of the subscription rights. Stockholders who exercise subscription rights
risk investment loss on new money invested. There is currently no public market for our shares of Series B Convertible Preferred
Stock. You are urged to make your decision based on your own assessment of our business and financial condition, our prospects
for the future, the terms of the rights offering and the information contained in, or incorporated by reference into, this prospectus.
See &ldquo;Risk Factors&rdquo; for a discussion of some of the risks involved in investing in our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">How do I exercise my subscription rights if I own
shares in certificate form?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you hold an InsPro
Technologies Corporation stock certificate and you wish to participate in the rights offering, you must take the following steps:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>deliver payment
                                                                                                              to us before 5:00
                                                                                                              p.m., Eastern Time,
                                                                                                              on __________, 2013;
                                                                                                              and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>deliver a properly
                                                                                                              completed and signed
                                                                                                              rights certificate
                                                                                                              to us before 5:00
                                                                                                              p.m., Eastern Time,
                                                                                                              on __________, 2013.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In certain cases, you may be required
to provide additional documentation or signature guarantees.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Please follow the
delivery instructions on the rights certificate. You are solely responsible for completing delivery to us of your subscription
documents, rights certificate and payment. We urge you to allow sufficient time for delivery of your subscription materials to
us so that they are received by us by 5:00 p.m., Eastern Time, on __________, 2013. <B>WE WILL NOT ACCEPT ANY SUBSCRIPTIONS THAT
WE RECEIVE AFTER THIS TIME.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you send a payment
that is insufficient to purchase the number of Units you request, or if the number of Units you request is not specified in the
forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount
of the payment received, subject to the availability of Units under the over-subscription privilege and the elimination of fractional
Units.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">What should I do if I want to participate in the
rights offering, but my shares are held in the name of a broker, dealer, custodian bank or other nominee?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you hold your shares
of common stock through a broker, dealer, custodian bank or other nominee, then your nominee is the record holder of the shares
you own. The record holder must exercise the subscription rights on your behalf. If you wish to purchase Units through the rights
offering, you should contact your broker, dealer, custodian bank or nominee as soon as possible. Please follow the instructions
of your nominee. Your nominee may establish a deadline that may be before the expiration date that we have established for the
rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">When will I receive my new shares and warrants?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you purchase Units
in the rights offering you will receive your new shares and warrants as soon as practicable after the closing of the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">After I send in my payment and rights certificate,
may I cancel my exercise of subscription rights?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No. All exercises
of subscription rights are irrevocable unless the rights offering is terminated, even if you later learn information that you
consider to be unfavorable to the exercise of your subscription rights. You should not exercise your subscription rights unless
you are certain that you wish to purchase Units in the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Are there any conditions to completing the rights
offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No, there are no conditions
to completion of the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">What effects will the rights offering have on our
outstanding Series B Convertible Preferred Stock and warrants?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31,
2012, we had 3,297,378 shares of Series B Convertible Preferred Stock and 92,020,447 warrants to purchase shares of common stock
issued and outstanding. The number of shares of our Series B Convertible Preferred Stock and warrants that we will issue in this
rights offering through the exercise of subscription rights will depend on the number of Units that are subscribed for in the
rights offering. We could, depending on the number of Units that are subscribed for in the offering, have a maximum of 4,129,878
shares of Series B Convertible Preferred Stock and warrants to purchase 100,345,447 shares of our common stock outstanding after
completion of the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The issuance of Units
in the rights offering will dilute, and thereby reduce, your proportionate ownership in InsPro Technologies Corporation. If you
fully exercise your basic subscription right and a certain level of your over-subscription privilege, your ownership interest
will be diluted to a lesser extent.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">How much will InsPro Technologies Corporation receive
from the rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If all of the subscription
rights (including all over-subscription privileges) are exercised in full by our stockholders, we expect the gross proceeds from
the rights offering to be approximately $2.5 million. If no subscription rights are exercised by our stockholders, we would receive
no proceeds from the rights offering. We are offering shares in the rights offering to stockholders with no individual minimum
purchase requirement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Are there risks in exercising my subscription rights?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Yes. The exercise
of your subscription rights involves risks. Exercising your subscription rights involves the purchase of additional shares of
our Series B Convertible Preferred Stock and warrants to purchase our common stock and should be considered as carefully as you
would consider any other equity investment. Among other things, you should carefully consider the risks described under the heading
&ldquo;Risk Factors&rdquo; in this prospectus and in the documents incorporated by reference in this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">If the rights offering is not completed, will my
subscription payment be refunded to me?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Yes. We will hold
all funds we receive in a segregated bank account until completion of the rights offering. If the rights offering is not completed,
all subscription payments received by us will be returned, without interest or penalty, as soon as practicable. If you own shares
in &ldquo;street name,&rdquo; it may take longer for you to receive your subscription payment because we will return payments
through the record holder of your shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">What fees or charges apply if I purchase Units
in the rights offering?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are not charging
any fee or sales commission to issue subscription rights to you or to issue shares or warrants to you if you exercise your subscription
rights. If you exercise your subscription rights through a broker, dealer, custodian bank or other nominee, you are responsible
for paying any fees your record holder may charge you.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">What are the material U.S. federal income tax consequences
of exercising my subscription rights?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">It is the opinion
of our counsel, Morgan, Lewis &amp; Bockius LLP, that you should not recognize income or loss for U.S. federal income tax purposes
in connection with the receipt or exercise of subscription rights in the rights offering. You should consult your tax advisor
as to your particular tax consequences resulting from the rights offering. For a detailed discussion, see &ldquo;Material U.S.
Federal Income Tax Considerations.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">To whom should I send my forms and payment?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If your shares are
held in the name of a broker, dealer or other nominee, then you should send your subscription documents, rights certificate and
subscription payment to that record holder. If you are the record holder, then you should send your subscription documents, rights
certificate and subscription payment by hand delivery, first class mail or courier service to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">InsPro Technologies Corporation</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">150 N. Radnor-Chester Road</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Suite B-101</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Radnor, Pennsylvania 19087</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Attn: Francis L. Gillan III</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You are solely responsible
for completing delivery to us of your subscription documents, rights certificate and payment. We urge you to allow sufficient
time for delivery of your subscription materials to us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Whom should I contact if I have other questions?</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you have any questions
regarding InsPro Technologies Corporation or the rights offering, please contact Francis L. Gillan III at (484) 654-2200. You
may also contact us with questions by electronic mail at <U>rightsoffering@inspro.com</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you have any questions
regarding completing a rights certificate or submitting payment in the rights offering, please contact Francis L. Gillan III at
(484) 654-2200 or by electronic mail at <U>rightsoffering@inspro.com</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">PROSPECTUS SUMMARY</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>This summary highlights
selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information
that you should consider before investing in our securities. You should read the entire prospectus carefully, including the &ldquo;Risk
Factors&rdquo; section, before making a decision to invest in our securities.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our Business</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are a technology
company that provides software applications for use by insurance administrators in the insurance industry. Our business focuses
primarily on our InsPro Enterprise software application.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We acquired Atiam
Technologies, L.P. on October 1, 2007. This entity, which changed its name to InsPro Technologies, LLC on May 14, 2009, developed,
sells and supports our InsPro Enterprise software application. InsPro Enterprise is a comprehensive, web-based insurance administration
software application, which was introduced by Atiam Technologies, L.P. (now our InsPro Technologies, LLC subsidiary) in 2004.
InsPro Enterprise clients include insurance carriers and third party administrators. We market InsPro Enterprise as a licensed
software application, and we realize revenue from the sale of the software licenses, application service provider fees, software
maintenance fees and consulting and implementation services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During 2005 through
October 1, 2007 our operations were primarily that of our former Telesales and Insurint businesses. We effectively sold our former
Telesales business in 2009 and our former Insurint business in 2010. Our former Telesales and Insurint businesses are now classified
as part of our discontinued operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our common stock has
been quoted on the OTCBB since December 6, 2010 under the symbol ITCC.OB and from December 13, 2005 until December 3, 2010 under
the symbol HBDT.OB.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Summary of this Rights Offering</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34%; padding-right: 5.4pt; padding-left: 5.4pt">Securities Offered</TD>
    <TD STYLE="width: 4%; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="width: 62%; padding-right: 5.4pt; padding-left: 5.4pt">We are distributing to you, at no charge, one non-transferable
    subscription right for each 53,155 shares of our common stock, 2,660 shares of Series A Convertible Preferred Stock and 2,665
    shares of Series B Convertible Preferred Stock that you owned as of 5:00 p.m., Eastern Time, on ________, 2013, 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 your behalf, as a beneficial owner of such shares. If the rights offering is fully subscribed, we expect the gross
    proceeds from the rights offering to be approximately $2.5 million. This rights offering was designed to give all of the holders
    of our capital stock the opportunity to participate in an equity investment in InsPro Technologies Corporation on the same
    economic terms as the investment made by investors in our last private placement in November 2012.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Basic Subscription Right</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">The basic subscription right will entitle you to purchase one unit at
    a subscription price of $999.00.&nbsp; A unit consists of 333 shares of our Series B Convertible Preferred Stock and a five-year
    warrant to purchase an additional 3,330 shares of our common stock at an exercise price of $0.15 per share.&nbsp; We refer
    to these units throughout this prospectus as &ldquo;Units.&rdquo;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">There is no minimum number of Units you must purchase, but you may not
    purchase fractional Units.&nbsp; When determining the number of subscription rights you will receive, divide the number of
    shares of our common stock you own by 53,155, the number of shares of Series A Convertible Preferred Stock you own by 2,660
    and the number of shares of Series B Convertible Preferred Stock you own by 2,665, and round down the sum of those amounts
    to the next whole number.&nbsp; For example, if you own 100,000 shares of our common stock, 10,000 shares of our Series A
    Convertible Preferred Stock and 10,000 shares of our Series B Convertible Preferred Stock, you will receive 9 subscription
    rights (100,000 shares of common stock divided by 53,155 = 1.88, 10,000 shares of Series A Convertible Preferred Stock divided
    by 2,660 = 3.76, and 10,000 shares of Series B Convertible Preferred Stock divided by 2,665 = 3.77, which sum = 9.41, rounded
    down to 9 subscription rights, the next whole number), which will entitle you to subscribe for up to 9 Units under your basic
    subscription privilege.</TD></TR>
</TABLE>


<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34%; padding-right: 5.4pt; padding-left: 5.4pt">Over-Subscription Privilege</TD>
    <TD STYLE="width: 4%; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="width: 62%; padding-right: 5.4pt; padding-left: 5.4pt">In the event that you purchase all of the Units available
    to you pursuant to your basic subscription right, you may also choose to subscribe for a portion of any Units that are not
    purchased by our stockholders through the exercise of their basic subscription rights. You may subscribe for these Units pursuant
    to your over-subscription privilege, subject to the limitations described below.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Subscription Price</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">$999.00 per Unit, payable in cash. To be effective, any payment related
    to the exercise of a subscription right must clear prior to the expiration of the rights offering.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Record Date</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">5:00 p.m., Eastern Time, on _______, 2013.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Expiration of the Rights Offering</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">5:00 p.m., Eastern Time, on _______, 2013.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Use of Proceeds</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">We intend to use the proceeds of the rights offering to improve our
    capital position and for general corporate purposes.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Non-Transferability of Rights</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">The subscription rights may not be sold, transferred or assigned and
    will not be listed for trading on the OTCBB or on any other stock exchange or market.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">No Revocation</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">All exercises of subscription rights are irrevocable, even if you later
    learn of information that you consider to be unfavorable to the exercise of your subscription rights. You should not exercise
    your subscription rights unless you are certain that you wish to purchase additional Units at a subscription price of $999.00
    per full Unit.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Material U.S. Federal</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Income Tax Consequences</P></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">It is the opinion of our counsel, Morgan, Lewis &amp; Bockius LLP, that
    you should not recognize income or loss for U.S. federal income tax purposes in connection with the receipt or exercise of
    subscription rights in the rights offering. &nbsp;You should consult your own tax advisor as to the tax consequences to you
    of the receipt, exercise or lapse of the subscription rights in light of your particular circumstances.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Extension, Cancellation and Amendment</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Although we do not presently intend to do so, we have the option to
    extend the rights offering and the period for exercising your subscription rights. Our board of directors may cancel the rights
    offering at any time prior to the expiration date of the rights offering for any reason. In the event that the rights offering
    is cancelled, all subscription payments received by us will be returned, without interest or penalty, as soon as practicable.
    We also reserve the right to amend or modify the terms of the rights offering at any time.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Procedures for Exercising Rights</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">To exercise your subscription rights, you must take the following steps:</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34%; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="width: 4%; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="width: 3%; padding-right: 5.4pt; padding-left: 5.4pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="width: 59%; padding-right: 5.4pt; padding-left: 5.4pt">If you are a registered holder of our common stock, you
    must deliver payment and a properly completed rights certificate to us so that we receive these items before 5:00 p.m., Eastern
    Time, on _______, 2013. You may deliver the documents and payments by hand delivery, first class mail or courier service.
    If first class mail is used for this purpose, we recommend using registered mail, properly insured, with return receipt requested.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-family: Symbol">&middot;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">If you are a beneficial owner of shares that are registered in the name
    of a broker, dealer, custodian bank or other nominee, or if you would rather an institution conduct the transaction on your
    behalf, you should instruct your broker, dealer, custodian bank or other nominee to exercise your subscription rights on your
    behalf. Please follow the instructions of your nominee, who may require that you meet a deadline earlier than 5:00 p.m., Eastern
    Time, on _______, 2013.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Shares Outstanding</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Before the Rights Offering</P></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">3,297,378 shares of our Series B Convertible Preferred Stock
    and warrants to purchase 92,020,447 shares of our common stock were outstanding as of December 31, 2012.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Shares Outstanding After Completion of the Rights Offering</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Assuming all Units are sold in the rights offering, we expect
    approximately 4,129,878 shares of our Series B Convertible Preferred Stock and warrants to purchase 100,345,447 shares of
    our common stock will be outstanding immediately after completion of the rights offering.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Fees and Expenses</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">We will pay the expenses related to the rights offering.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">The Over-the-Counter Bulletin Board</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Our shares of common stock are currently listed for trading
    on the OTCBB under the ticker symbol &ldquo;ITCC.OB .&rdquo;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Risk Factors</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Before you exercise your subscription rights to purchase
    shares of our common stock, you should carefully consider risks described in the section entitled &ldquo;Risk Factors,&rdquo;
    beginning on page 18 of this prospectus.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our Corporate Information</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our principal executive
offices are located at 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087. Our telephone number is (484) 654-2200.
Our website address is www.inspro.com. The information contained on our website is not incorporated by reference into, and does
not form any part of, this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">RISK FACTORS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>Investing in our
securities involves significant risks. In addition to all of the other information contained in this prospectus, you should carefully
consider the risks and uncertainties described below before deciding to invest in our common stock and preferred stock. If any
of the following risks actually occur, they may materially harm our business, our financial condition or our results of operations.
In this event, the market price of our securities could decline and you could lose all or part of your investment.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Risks Related to the Rights Offering</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">If you do not exercise your subscription rights,
your percentage ownership in InsPro Technologies Corporation will be diluted.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Stockholders who do
not fully exercise their subscription rights should expect that they will, at the completion of this offering, own a smaller proportional
interest in our company than would otherwise be the case had they fully exercised their basic subscription and over-subscription
rights. In addition, the shares issuable upon the exercise of the warrants to be issued pursuant to this rights offering will
dilute the ownership interest of stockholders not participating in this offering or holders of warrants issued pursuant to this
offering who have not exercised them.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">The subscription rights are not transferable, and
there is no market for the subscription rights.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You may not sell,
give away or otherwise transfer your subscription rights. The subscription rights are only transferable by operation of law. Because
the subscription rights are non-transferable, there is no market or other means for you to directly realize any value associated
with the subscription rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">If we terminate this offering for any reason, we
will have no obligation other than to return subscription monies as soon as practicable.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may decide, in
our sole discretion and for any reason, to cancel or terminate the rights offering at any time prior to the expiration date. If
this offering is cancelled or terminated, we will have no obligation with respect to subscription rights that have been exercised
except to return as soon as practicable, without interest, the subscription payments deposited with us. If we terminate this offering
and you have not exercised any subscription rights, such subscription rights will expire worthless.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">The subscription price determined for this offering
is not an indication of the fair value of our common stock.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In determining the
subscription price, our board of directors considered the overall economic value offered to investors in InsPro Technologies Corporation
in our last private placement in November 2012. If an investor had invested in these last private placement, for every $999.00
invested, such investor would have received 333 shares of Series B Convertible Preferred Stock and warrants to purchase 3,330
additional shares of our common stock at an exercise price of $0.15 per share. As a result, the Units offered in this rights offering
consist of 333 shares of our Series B Convertible Preferred Stock and a warrant to purchase 3,330 shares of our common stock at
a price per Unit of $999.00.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We did not seek or
obtain an opinion of financial advisors in establishing the subscription price. The subscription price will not necessarily be
related to our book value, tangible book value, net worth or any other established criteria of fair value and may or may not be
considered the fair value of our common stock to be offered in the rights offering. You should not assume or expect that, after
the rights offering, our shares of common stock will trade at or above the equivalent component of the subscription price in any
given time period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We will have broad discretion in the use of the
net proceeds from this offering and may not use the proceeds effectively.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although we plan to
use the proceeds of this offering for general corporate purposes, including working capital, we will not be restricted to such
use and will have broad discretion in determining how the proceeds of this offering will be used. Our discretion is not substantially
limited by the uses set forth in this prospectus in the section entitled &ldquo;Use of Proceeds.&rdquo; While our board of directors
believes the flexibility in application of the net proceeds is prudent, the broad discretion it affords entails increased risks
to the investors in this offering. Investors in this offering have no current basis to evaluate the possible merits or risks of
any application of the net proceeds of this offering. Our stockholders may not agree with the manner in which we choose to allocate
and spend the net proceeds.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">If you do not act on a timely basis and follow
subscription instructions, your exercise of subscription rights may be rejected.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Holders of subscription
rights who desire to purchase Units in this offering must act on a timely basis to ensure that all required forms and payments
are actually received by us prior to 5:00 p.m., New York City time, on the expiration date, unless extended, unless delivery of
the subscription rights certificate is effected pursuant to the guaranteed delivery procedures as described below. If you are
a beneficial owner of shares of capital stock and you wish to exercise your subscription rights, you must act promptly to ensure
that your broker, dealer, custodian bank or other nominee acts for you and that all required forms and payments are actually received
by your broker, dealer, custodian bank or other nominee in sufficient time to deliver such forms and payments to us to exercise
the subscription rights granted in this offering that you beneficially own prior to 5:00 p.m., New York City time on the expiration
date, as may be extended, unless delivery of the subscription rights certificate is effected pursuant to the guaranteed delivery
procedures as described below. We will not be responsible if your broker, dealer, custodian bank or other nominee fails to ensure
that all required forms and payments are actually received by us prior to 5:00 p.m., New York City time, on the expiration date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you fail to complete
and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures
that apply to your exercise in this rights offering, we may, depending on the circumstances, reject your subscription or accept
it only to the extent of the payment received. We do not undertake to contact you concerning an incomplete or incorrect subscription
form or payment, nor are we under any obligation to correct such forms or payment. We have the sole discretion to determine whether
a subscription exercise properly follows the subscription procedures.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">You may not receive all of the Units for which
you subscribe pursuant to the over-subscription privilege.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Holders who fully
exercise their basic subscription rights will be entitled to subscribe for an additional amount of Units that are not purchased
by our other holders through the exercise of their basic subscription rights. Over-subscription rights will be allocated pro-rata
among subscription rights holders who over-subscribed, based on the number of shares of capital stock owned by such holders on
the record date, relative to the number of shares owned on the record date by all stockholders exercising the over-subscription
privilege. You may not receive any or all of the amount of Units for which you over-subscribed. If the prorated amount of Units
allocated to you in connection with your over-subscription right is less than your over-subscription request, then the excess
funds held by us on your behalf will be returned to you, without interest, as soon as practicable after the rights offering has
expired and all prorating calculations and reductions contemplated by the terms of the rights offering have been effected, and
we will have no further obligations to you.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">If you make payment of the subscription price by
uncertified check, your check may not clear in sufficient time to enable you to purchase Units in this rights offering.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any uncertified check
used to pay for Units to be issued in this rights offering must clear prior to the expiration date of this rights offering, and
the clearing process may require five or more business days. If you choose to exercise your subscription rights, in whole or in
part, and to pay for Units by uncertified check and your check has not cleared prior to the expiration date of this rights offering,
you will not have satisfied the conditions to exercise your subscription rights and will not receive the Units you wish to purchase.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">The receipt of subscription rights may be treated
as a taxable distribution to you.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">It is the opinion
of our counsel, Morgan, Lewis &amp; Bockius LLP, that the distribution of the subscription rights in this rights offering should
be a non-taxable distribution under Section 305(a) of the Internal Revenue Code of 1986, as amended, or the Code. Please see the
discussion on the &ldquo;Material U.S. Federal Income Tax Considerations&rdquo; below. This position is not binding on the Internal
Revenue Service, or the IRS, or the courts, however. If this rights offering is deemed to be part of a &ldquo;disproportionate
distribution&rdquo; under Section 305(b)(2) of the Code (or otherwise to be within one of the exceptions to Section 305(a) of
the Code set forth in Section 305(b) of the Code), your receipt of subscription rights in this offering may be treated as the
receipt of a taxable distribution to you equal to the fair market value of the subscription rights. Any such distribution would
be treated as dividend income to the extent of our current and accumulated earnings and profits, if any, with any excess being
treated as a return of capital to the extent thereof and then as capital gain. Each holder of capital stock is urged to consult
his, her or its own tax advisor with respect to the particular tax consequences of this rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Absence of a public trading market for the warrants
and shares of Series B Convertible Preferred Stock may limit the ability of a purchaser to resell the warrants and/or the shares
of Series B Convertible Preferred Stock.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There is no established
trading market for the warrants or the shares of our Series B Convertible Preferred Stock to be issued pursuant to this offering,
and such securities may not be widely distributed. There can be no assurance that a market will develop for the warrants or the
shares of Series B Convertible Preferred Stock. Even if a market for these securities does develop, the price of the warrants
and the Series B Convertible Preferred Stock may fluctuate and liquidity may be limited. If a market for these securities does
not develop, then purchasers of the warrants and the shares of Series B Convertible Preferred Stock may be unable to resell the
securities or sell them only at an unfavorable price for an extended period of time, if at all. Future trading prices of the warrants
and shares of Series B Convertible Preferred Stock will depend on many factors, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our operating
                                                                                                              performance and
                                                                                                              financial condition;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our ability
                                                                                                              to continue the
                                                                                                              effectiveness of
                                                                                                              the registration
                                                                                                              statement, of which
                                                                                                              this prospectus
                                                                                                              is a part, covering
                                                                                                              the warrants and
                                                                                                              shares of Series
                                                                                                              B Convertible Preferred
                                                                                                              Stock and the common
                                                                                                              stock issuable upon
                                                                                                              exercise or conversion
                                                                                                              of these securities;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the interest
                                                                                                              of securities dealers
                                                                                                              in making a market;
                                                                                                              and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the market for
                                                                                                              similar securities.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">The market price of our common stock may never
exceed the exercise price of the warrants issued in connection with this offering.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The warrants being
issued in connection with this offering become exercisable on their date of issuance and will expire five years thereafter. We
cannot provide you any assurance that the market price of our common stock will ever exceed the exercise price of these warrants
prior to their date of expiration. Any warrants not exercised by their date of expiration will expire worthless and we will be
under no further obligation to the warrant holder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Since the warrants are executory contracts, they
may have no value in a bankruptcy or reorganization proceeding.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event a bankruptcy
or reorganization proceeding is commenced by or against us, a bankruptcy court may hold that any unexercised warrants are executory
contracts that are subject to rejection by us with the approval of the bankruptcy court. As a result, holders of the warrants
may, even if we have sufficient funds, not be entitled to receive any consideration for their warrants or may receive an amount
less than they would be entitled to if they had exercised their warrants prior to the commencement of any such bankruptcy or reorganization
proceeding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Your ability to resell the securities you acquire
in the rights offering may be limited by state securities laws.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you purchase securities
in the rights offering, you may not be able to resell the securities to other persons unless the securities are registered under
the securities laws of the states in which the potential purchasers reside or exemptions from registration requirements are available
in such states. We do not intend to register any of the securities for resale in any states or jurisdictions. Consequently, you
may only be able to sell the securities in those states where exemptions are available, such as an exemption for sales to institutional
investors. In addition, in the event that the warrants to be issued in this rights offering are sold to another person, the purchaser
may not be able to exercise the warrants unless an exemption is available in the purchaser&rsquo;s state of residence for the
issuance of common stock upon the exercise of warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Risks Relating to our Company and Industry</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have incurred significant operating losses since
our inception, which we anticipate will continue for the foreseeable future.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Since our inception,
we have incurred significant operating losses. As of September 30, 2012, we had an accumulated deficit of approximately $49.7
million. We incurred operating losses of approximately $6.9 million for the nine months ended September 30, 2012, $2.5 million
net loss for the year ended December 31, 2010, $6.3 million for the year ended December 31, 2009, $9.0 million for the year ended
December 31, 2008, $14.3 million for the year ended December 31, 2007, $14 million for the year ended December 31, 2006, $3.2
million for the year ended December 31, 2005 and approximately $1.1 million for the period from our inception on January 27, 2004
through December 31, 2004. We reported $0.5 million net income for the year ended December 31, 2011. We expect to incur significant
and increasing operating expenses and capital expenditures relating to the development of our software-related business, particularly
as we pursue growth internally, expanding our marketing efforts, and further the development of our technologies. In addition,
we will continue to incur significant legal, accounting and other expenses associated with our status as a reporting company under
the Securities Exchange Act of 1934, as amended, or the Exchange Act. As a result, we will need to generate significant revenues
to achieve profitability. Even if we achieve profitability, we may be unable to maintain or increase profitability on a quarterly
or annual basis. If we are unable to achieve and then maintain profitability, the market value of our stock will decline.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">If we fail to increase our brand recognition, we
may face difficulty in attracting new customers.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that establishing,
maintaining and enhancing our brand in a cost-effective manner is critical to achieving widespread acceptance of our current and
future products and services and is an important element in our efforts to maintain and expand our relationships with customers
and to grow our customer base, particularly in light of the competitive nature of our business. We believe that the importance
of brand recognition will increase as competition in our market develops. Some of our competitors already have well-established
brands in the individual health and life insurance market. Successful promotion of our brand will depend largely on our ability
to maintain a sizeable and active customer base, the success of our marketing efforts and our ability to provide high quality
products and reliable and useful service to our customers. There can be no assurance that brand promotion activities will yield
increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we
fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote
and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to
realize a sufficient return on our brand-building efforts, in which case our business, financial condition and results of operations
could be materially harmed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may be unable to obtain additional capital when
necessary or on terms that are acceptable to us, if at all.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Since our inception,
we have used significant amounts of cash in our operations and in investing activities. As of September 30, 2012, we had a cash
balance of approximately $2.1 million. We used cash in operations of approximately $0.6 million for the nine months ended September
30, 2012, $1.5 million for the year ended December 31, 2011, $4.8 million for the year ended December 31, 2010, $5.3 million for
the year ended December 31, 2009, $8.4 million for the year ended December 31, 2008, $5.5 million for the year ended December
31, 2007, approximately $6.5 million for the year ended December 31, 2006, $1.2 million for the year ended December 31, 2005 and
approximately $0.5 million for the period from our inception on January 27, 2004 through December 31, 2004. We used cash in investing
of approximately $0.3 million for the nine months ended September 30, 2009, $0.8 million for the year ended December 31, 2008,
$1.9 million for the year ended December 31, 2007, approximately $3.2 million for the year ended December 31, 2006, $0.3 million
for the year ended December 31, 2005 and approximately $0.2 million for the period from our inception on January 27, 2004 through
December 31, 2004.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We expect that we
will need significant additional cash resources to operate and expand our business in the future. Our future capital requirements
will depend on many factors, including our ability to maintain our existing cost structure and return on sales, fund obligations
for repayment of our credit facility with Silicon Valley Bank, additional capital and execute our business and strategic plans
as currently conceived. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity
or debt securities or obtain a credit facility. The sale of additional equity securities would result in additional dilution to
our stockholders. Additional indebtedness would result in debt service obligations and could result in operating and financing
covenants that would restrict our operations. In addition, financing might be unavailable in amounts or on terms acceptable to
us, if at all.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are substantially dependent on our InsPro software
application.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We derive a significant
portion of our revenue from software license and maintenance revenue attributable to our InsPro software application. Accordingly,
our future results depend on continued market acceptance of InsPro, and any factor adversely affecting the market for InsPro could
have a material adverse effect on our business, financial condition and operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may be unsuccessful in attracting or retaining
key sales, marketing and other personnel or in retaining the members of our senior management team.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The success of our
business is dependent on our ability to attract and retain highly skilled managers and sales and marketing personnel and to retain
the members of our senior management team. Our inability to retain key personnel and attract additional qualified personnel could
harm our development and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may be unable to sufficiently protect our intellectual
property.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our business and competitive
positions are dependent on our ability to use and protect our proprietary technologies. Our patent applications may not protect
our technologies because, among other things:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>there is no
                                                                                                              guarantee that any
                                                                                                              pending patent applications
                                                                                                              will result in issued
                                                                                                              patents;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>we may develop
                                                                                                              additional proprietary
                                                                                                              technologies that
                                                                                                              are not patentable;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>there is no
                                                                                                              guarantee that any
                                                                                                              patent issued to
                                                                                                              us will provide
                                                                                                              us with any competitive
                                                                                                              advantage;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>there is no
                                                                                                              guarantee that any
                                                                                                              patents issued to
                                                                                                              us will not be challenged,
                                                                                                              circumvented or
                                                                                                              invalidated by third
                                                                                                              parties; and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>there is no
                                                                                                              guarantee that any
                                                                                                              patents previously
                                                                                                              issued to others
                                                                                                              or issued in the
                                                                                                              future will not
                                                                                                              have an adverse
                                                                                                              effect on our ability
                                                                                                              to do business.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, if we
are unable to protect and control unpatented trade secrets, know-how and other technological innovation, we may suffer competitive
harm. We also rely on trade secrets, know-how and technologies that are not protected by patents to maintain our competitive position.
Trade secrets are difficult to protect. To maintain the confidentiality of trade secrets and proprietary information, we generally
seek to enter into confidentiality agreements with our employees, consultants and collaborators upon the commencement of a relationship
with us. However, we at times do not obtain these agreements, nor can we guarantee that these agreements will provide meaningful
protection, that these agreements will not be breached or that we will have an adequate remedy for any such breach. In addition,
adequate remedies may not exist in the event of unauthorized use or disclosure of this information. Others may have developed,
or may develop in the future, substantially similar or superior know-how and technologies. The loss or exposure of our trade secrets,
know-how and other proprietary information, or independent development of similar or superior know-how, could harm our business,
financial condition and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may become subject to intellectual property
rights claims in the future, which are extremely costly to defend, could require us to pay significant damages and could limit
our ability to use the affected technologies.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our commercial success
will depend in part on not infringing the patents or proprietary rights of third parties. Third parties could bring legal actions
against us claiming damages and seeking to enjoin us from using any technology found to be in violation of a third party&rsquo;s
rights. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome
of the litigation. If any of these actions are successful, in addition to any potential liability for damages, we could be required
to obtain a license to continue to use the affected technology, in which case we may be required to pay substantial fees. There
can be no assurance that any such license will be available on acceptable terms or at all.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">If we are unable to satisfy regulatory requirements
relating to internal controls, or if our internal controls over financial reporting are not effective, our stock price could decline.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As directed by Section
404 of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission, or the Commission, adopted rules requiring public
companies to include a report of management on the company&rsquo;s internal controls over financial reporting in their annual
reports required by Section 13(a) of the Exchange Act. In addition, the public accounting firm auditing the company&rsquo;s financial
statements must attest to and report on management&rsquo;s assessment of the effectiveness of the company&rsquo;s internal controls
over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place to
help ensure that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs
to be re-evaluated frequently. Any failure to maintain the adequacy of our internal controls, or the resulting inability to produce
accurate financial statements on a timely basis, could increase our operating costs and harm our ability to operate our business.
In addition, investor perception that our internal controls are inadequate or that we are unable to produce accurate financial
statements on a consistent basis may adversely affect our stock price.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may be unable to manage our growth effectively.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our ability to compete
effectively and to manage our future growth, if any, requires us to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>continue to
                                                                                                              improve our financial
                                                                                                              and management controls
                                                                                                              and reporting systems
                                                                                                              and procedures to
                                                                                                              support the proposed
                                                                                                              expansion of our
                                                                                                              business operations;
                                                                                                              and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>locate or hire,
                                                                                                              at reasonable compensation
                                                                                                              rates, qualified
                                                                                                              personnel and other
                                                                                                              employees necessary
                                                                                                              to expand our capacity
                                                                                                              in order to accommodate
                                                                                                              the proposed expansion
                                                                                                              of our business
                                                                                                              operations.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may be unable to find or complete strategic
acquisitions of complementary businesses or technologies or to integrate acquired businesses or technologies.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our business strategy
includes, among other things, achieving growth through the acquisition and integration into our business of complementary businesses
or technologies. We may be unable to find additional complementary businesses or technologies to acquire. Future acquisitions
may result in substantial per share financial dilution of our common stock from the issuance of equity securities. Completion
of future acquisitions also would expose us to potential risks, including risks associated with:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the assimilation
                                                                                                              of new operations,
                                                                                                              technologies and
                                                                                                              personnel;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>unforeseen or
                                                                                                              hidden liabilities
                                                                                                              or other unanticipated
                                                                                                              events or circumstances;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the diversion
                                                                                                              of resources from
                                                                                                              our existing business;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the inability
                                                                                                              to generate sufficient
                                                                                                              revenue to offset
                                                                                                              the costs and expenses
                                                                                                              of acquisitions,
                                                                                                              which may result
                                                                                                              in the impairment
                                                                                                              of assets acquired
                                                                                                              through acquisitions;
                                                                                                              and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the potential
                                                                                                              loss of, or harm
                                                                                                              to, relationships
                                                                                                              with our employees
                                                                                                              and customers as
                                                                                                              a result of the
                                                                                                              integration of new
                                                                                                              businesses.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our operating results may fluctuate as a result
of factors beyond our control.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our operating results
may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond our control. These factors
include, but are not limited to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>capital expenditures
                                                                                                              for the development
                                                                                                              of our technologies;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>marketing and
                                                                                                              promotional activities
                                                                                                              and other costs;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>changes in operating
                                                                                                              expenses;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>increased competition
                                                                                                              in our market; and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>other general
                                                                                                              economic and seasonal
                                                                                                              factors.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our business may be materially adversely impacted
by U.S. and global market and economic conditions, particularly adverse conditions in the insurance industry.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the foreseeable
future, we expect to continue to derive most of our revenue from products and services we provide to the insurance industry. Given
the concentration of our business activities in the insurance industry, we may be particularly exposed to economic downturns in
this industry. U.S. and global market and economic conditions have been, and continue to be, disrupted and volatile. A poor economic
environment could result in significant decreases in demand for our products or could present difficulties in collecting accounts
receivables from our customers due to their deteriorating financial condition. Our existing customers may be acquired by or merged
into other institutions that use our competitors or decide to terminate their relationships with us for other reasons. As a result,
our sales could decline if an existing customer is merged with or acquired by another company or closed. All of these conditions
could adversely affect our operating results and financial position.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may not be able to secure additional financing
to support capital requirements when needed.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may need to raise
additional funds in the future in order to fund more aggressive promotion or more rapid market penetration, to develop new or
enhanced products, to respond to competitive pressures, to make acquisitions or for other purposes. Any required additional financing
may not be available on terms favorable to us, or at all, particularly in light of current conditions in the credit markets. If
adequate funds are not available on acceptable terms, we may be unable to meet our strategic business objectives or compete effectively,
and the future growth of our business could be adversely impacted. If additional funds are raised by our issuing equity securities,
stockholders may experience dilution of their ownership and economic interests, and the newly issued securities may have rights
superior to those of our common stock. If additional funds are raised by our issuing debt, we may be subject to significant market
risks related to interest rates, and operating risks regarding limitations on our activities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">The markets for our products are highly competitive
and are likely to become more competitive, and our competitors may be able to respond more quickly to new or emerging technology
and changes in customer requirements.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our insurance software
business experiences competition from certain large hardware suppliers that sell systems and system components to independent
agencies and from small independent developers and suppliers of software, who sometimes work in concert with hardware vendors
to supply systems to independent agencies. Pricing strategies and new product introductions and other pressures from existing
or emerging competitors could result in a loss of customers or a rate of increase or decrease in prices for our services different
than past experience.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Some of our current
competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial
and marketing resources than we do.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">If we infringe on the proprietary rights of others,
our business operations may be disrupted, and any related litigation could be time consuming and costly.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Third parties may
claim that we have violated their intellectual property rights. Any of these claims, with or without merit, could subject us to
costly litigation and divert the attention of key personnel. To the extent that we violate a patent or other intellectual property
right of a third party, we may be prevented from operating our business as planned, and we may be required to pay damages, to
obtain a license, if available, to use the right or to use a non-infringing method, if possible, to accomplish our objectives.
The cost of such activity could have a material adverse effect on our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If a third party infringes on our
proprietary rights, our business operations may be disrupted, and any related litigation could be time consuming and costly. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.2in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We rely on a combination of trademark,
copyright and trade secret laws in the United States and other jurisdictions as well as confidentiality procedures and contractual
provisions to protect our proprietary technology and our brand.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">We may be unable to compete successfully against
new and existing competitors.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We operate in a highly
competitive market with few barriers to entry. We expect that competition will continue to intensify. Some of our competitors
are more established than we are, and have significantly greater financial, technical, marketing and other resources than we do.
In addition, many of our current and potential competitors can devote substantially greater resources than we can to promotion,
website development and systems development. Many of our competitors have greater name recognition and a larger customer base
than we do. These competitors may be able to respond more quickly to new or changing opportunities and customer requirements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Technology and customer requirements evolve rapidly
in our industry, and if we do not continue to develop new products and enhance our existing products in response to these changes,
our business could be harmed.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Ongoing enhancements
to our products will be required to enable us to maintain our competitive position. We may not be successful in developing and
marketing enhancements to our products on a timely basis, and any enhancements we develop may not adequately address the changing
needs of the marketplace. Overlaying the risks associated with our existing products and enhancements are ongoing technological
developments and rapid changes in customer requirements. Our future success will depend upon our ability to develop and introduce
in a timely manner new products or upgrades to our existing products that take advantage of technological advances and respond
to new customer requirements. The development of new products is increasingly complex and uncertain, which increases the risk
of delays. We may not be successful in developing new or updated products incorporating new technology on a timely basis, and
any new products may not adequately address the changing needs of the marketplace. Failure to develop new products and product
enhancements that meet market needs in a timely manner could have a material adverse effect on our business, financial condition
and operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Risks Relating to our Common Stock</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Sales of substantial amounts of our common stock
in the public market could depress the market price of our common stock.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our common stock currently
is quoted on the OTCBB, which is a limited and illiquid market. If our stockholders sell substantial amounts of our common stock
in the public market, including the shares being registered under this registration statement and shares issuable upon the exercise
of outstanding warrants and options, or the market perceives that such sales may occur, the market price of our common stock could
fall and we may be unable to sell our common stock in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our common stock may experience extreme price and
volume fluctuations, which could lead to costly litigation for us and make an investment in us less appealing.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The market price of
our common stock may fluctuate substantially due to a variety of factors, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our business
                                                                                                              strategy and plans;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>changing factors
                                                                                                              related to doing
                                                                                                              business in various
                                                                                                              jurisdictions within
                                                                                                              the United States;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>new regulatory
                                                                                                              pronouncements and
                                                                                                              changes in regulatory
                                                                                                              guidelines and timing
                                                                                                              of regulatory approvals;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>general and
                                                                                                              industry-specific
                                                                                                              economic conditions;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>additions to
                                                                                                              or departures of
                                                                                                              our key personnel;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>variations in
                                                                                                              our quarterly financial
                                                                                                              and operating results;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>changes in market
                                                                                                              valuations of other
                                                                                                              companies that operate
                                                                                                              in our business
                                                                                                              segments or in our
                                                                                                              industry;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>lack of adequate
                                                                                                              trading liquidity;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>announcements
                                                                                                              about our business
                                                                                                              partners;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>changes in accounting
                                                                                                              principles; and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>general market
                                                                                                              conditions.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The market prices
of the securities of early-stage companies, particularly companies like ours without consistent product revenues and earnings,
have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to
the operating performance of particular companies. In the past, companies that experience volatility in the market price of their
securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against us could
result in substantial costs, divert our management&rsquo;s attention and resources and harm our financial condition and results
of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our directors, executive officers and entities
affiliated with them beneficially own a substantial number of shares of our common stock, which gives them significant control
over certain major decisions.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31,
2012, our executive officers and directors and entities affiliated with them beneficially owned, in the aggregate, approximately
81.3% of our outstanding shares of common stock, 98.6% of our outstanding shares of Series A Convertible Preferred Stock and 42.9%
of our outstanding shares of Series B Convertible Preferred Stock, based on a total of 41,543,655 shares of common stock, 1,276,750
shares of Series A Convertible Preferred Stock and 3,297,378 shares of Series B Convertible Preferred Stock outstanding. These
executive officers, directors and their affiliates may have different interests than you. For example, they could act to delay
or prevent a change of control of us, even if such a change of control would benefit our other stockholders, could prevent or
frustrate attempts to replace or remove current management or could pursue strategies that are different from the wishes of other
investors. This significant concentration of stock ownership may adversely affect the trading price of our common stock due to
investors&rsquo; perception that conflicts of interest may exist or arise.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Transactions in which a privately-held company
merges into a largely inactive company with publicly traded stock are generally closely scrutinized by the Commission and we may
encounter difficulties or delays in obtaining future regulatory approvals.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Historically, the
Commission and Nasdaq and securities exchanges have disfavored transactions in which a privately-held company merges into a largely
inactive company with publicly traded stock, and there is a significant risk that we may encounter difficulties in obtaining the
regulatory approvals necessary to conduct future financing or acquisition transactions, or to eventually achieve our common stock
being quoted on Nasdaq or listed on a securities exchange. Effective August 22, 2005, the Commission adopted rules dealing with
private company mergers into dormant or inactive public companies. As a result, it is likely that we will be scrutinized carefully
by the Commission and possibly by the National Association of Securities Dealers or Nasdaq or a national securities exchange,
which could result in difficulties or delays in achieving Commission clearance of any future registration statements or other
Commission filings that we may pursue, in attracting NASD-member broker-dealers to serve as market-makers in our stock, or in
achieving admission to Nasdaq or a national securities exchange. As a result, our financial condition and the value and liquidity
of our shares may be negatively impacted.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">As a stock quoted on the OTCBB, our common stock,
which is deemed to be &ldquo;penny stock,&rdquo; currently has limited liquidity.</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Holders of shares
of our common stock, which are quoted on the OTCBB, may find that the liquidity of our common stock is impaired as compared with
the liquidity of securities listed on Nasdaq or one of the national or regional exchanges in the United States. This impairment
of liquidity may result from reduced coverage of us by security analysts and news media and lower prices for our common stock
than may otherwise be attained. In addition, our common stock is deemed to be &ldquo;penny stock,&rdquo; as that term is defined
in rules under the Exchange Act. Penny stocks generally are equity securities that are not registered on certain national securities
exchanges or quoted by Nasdaq and have a price per share of less than $5.00. Penny stock may be difficult for investors to resell.
Federal rules and regulations impose additional sales practice requirements on broker-dealers who sell the stock to persons other
than established customers and accredited investors. For transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of these securities and obtain the purchaser&rsquo;s written consent to the transaction
prior to the sale. Prior to the sale, broker-dealers must also deliver to the potential purchaser a disclosure schedule prescribed
by the Commission, describing the penny stock market and disclose the commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, broker-dealers must deliver to penny stock investors monthly
statements disclosing recent price information for penny stocks held in the account and information on the limited market in penny
stocks. These additional requirements restrict the ability of broker-dealers to sell our common stock and make it more difficult
for investors to dispose of our common stock in the secondary market and may also adversely affect the price of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">THE RIGHTS OFFERING</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">The Subscription Rights</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are distributing,
at no charge to the holders of our capital stock non-transferable subscription rights to subscribe for units, which we refer to
throughout this prospectus as Units, consisting of 333 shares of our Series B Convertible Preferred Stock and a five-year warrant
to purchase 3,330 additional shares of our common stock at an exercise price of $0.15 per share. Our stockholders will receive
one subscription right for every 53,155 shares of our common stock, 2,660 shares of Series A Convertible Preferred Stock and 2,665
shares of Series B Convertible Preferred Stock held of record as of 5:00 p.m., New York City time, on ________, 2013, the record
date. Pursuant to the terms of this offering, the rights may only be exercised for a maximum of 2,500 Units, or $2.5 million of
gross subscription proceeds.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each subscription
right entitles the holder to a basic subscription right and an over-subscription privilege.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Basic Subscription
Right</I></B>. With your basic subscription right, you may purchase one Unit, consisting of 333 shares of our Series B Convertible
Preferred Stock and a five-year warrant to purchase 3,330 additional shares of our common stock and exercise price of $0.15 per
share, subject to delivery of the required documents and payment of the subscription price of $999.00 per Unit, prior to the expiration
of the rights offering. You may exercise all or a portion of your basic subscription right, or you may choose not to exercise
any of your subscription rights. If you do not exercise your basic subscription rights in full, you will not be entitled to purchase
any shares under your over-subscription privilege. There is no minimum number of Units you must purchase, but you may not purchase
fractional Units. When determining the number of subscription rights you will receive, divide the number of shares of our common
stock you own by 53,155, the number of shares of Series A Convertible Preferred Stock you own by 2,660 and the number of shares
of Series B Convertible Preferred Stock you own by 2,665, and round down the sum of those amounts to the next whole number. For
example, if you own 100,000 shares of our common stock, 10,000 shares of our Series A Convertible Preferred Stock and 10,000 shares
of our Series B Convertible Preferred Stock, you will receive 9 subscription rights (100,000 shares of common stock divided by
53,155 = 1.88, 10,000 shares of Series A Convertible Preferred Stock divided by 2,660 = 3.76, 10,000 shares of Series B Convertible
Preferred Stock divided by 2,665 = 3.77, which sum = 9.41, rounded down to 9 subscription rights, the next whole number), which
will entitle you to subscribe for up to 9 Units under your basic subscription privilege.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any excess subscription
payments received by us will be returned, without interest, as soon as practicable following the expiration of the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will deliver certificates
representing shares of our Series B Convertible Preferred Stock and warrants or credit your account at your record holder with
shares of our Series B Convertible Preferred Stock and warrants that you purchased with the basic subscription rights as soon
as practicable after the rights offering has expired.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Over-Subscription
Privilege</I></B>. If you purchase all of the Units available to you pursuant to your basic subscription right, you may also choose
to purchase a portion of any Units that are not purchased by other stockholders through the exercise of their basic subscription
rights. If sufficient Units are available, we will seek to honor the over-subscription requests in full. If, however, over-subscription
requests exceed the number of Units available, we will allocate the available Units pro rata among the stockholders exercising
the over-subscription privilege in proportion to the number of shares of capital stock owned by such stockholder on the record
date, relative to the number of shares owned on the record date by all stockholders exercising the over-subscription privilege.
If this pro rata allocation results in any stockholder receiving a greater number of Units than the stockholder subscribed for
pursuant to the exercise of the over-subscription privilege, then such stockholder will be allocated only that number of Units
for which the stockholder oversubscribed, and the remaining Units will be allocated among all other stockholders exercising the
over-subscription privilege on the same pro rata basis described above. The proration process will be repeated until all Units
have been allocated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In order to properly
exercise your over-subscription privilege, you must deliver the subscription payment related to your over-subscription privilege
prior to the expiration of the rights offering. Because we will not know the total number of unsubscribed Units prior to the expiration
of the rights offering, if you wish to maximize the number of Units you purchase pursuant to your over-subscription privilege,
you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of Units that may
be available to you (i.e., for the maximum number of Units available to you, assuming you exercise all of your basic subscription
right and are allotted the full amount of your over-subscription without reduction).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We can provide no
assurances that you will actually be entitled to purchase the number of Units issuable upon the exercise of your over-subscription
right in full at the expiration of the rights offering. We will not be able to satisfy any orders for Units pursuant to the over-subscription
privilege if all of our stockholders exercise their basic subscription rights in full, and we will only honor an over-subscription
privilege to the extent sufficient Units are available following the exercise of subscription rights pursuant to the basic subscription
rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To the extent the
aggregate subscription price of the actual number of unsubscribed Units available to you pursuant to the over-subscription privilege
is less than the amount you actually paid in connection with the exercise of the over-subscription privilege, you will be allocated
only the number of unsubscribed Units available to you, and any excess subscription payments will be returned to you, without
interest or penalty, as soon as practicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To the extent the
amount you actually paid in connection with the exercise of the over-subscription privilege is less than the aggregate subscription
price of the maximum number of unsubscribed Units available to you pursuant to the over-subscription privilege, you will be allocated
the number of unsubscribed Units for which you actually paid in connection with the over-subscription privilege and subject to
the elimination of any fractional Units.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any excess subscription
payments received by us will be returned, without interest or penalty, as soon as practicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will deliver certificates
representing shares of our of Series B Convertible Preferred Stock and warrants or credit the account of your record holder with
shares of our of Series B Convertible Preferred Stock and warrants that you purchased with the over-subscription privilege as
soon as practicable after the expiration of the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Reasons for the Rights Offering</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are engaging in
the rights offering to give all of the holders of our capital stock the opportunity to participate in an equity investment in
InsPro Technologies Corporation on substantially the same economic terms as our last private placement in November 2012 and to
raise capital to improve our overall capital position. Our board of directors has chosen to raise capital through a rights offering
to give our stockholders the best opportunity to limit ownership dilution by participating in the rights offering on a pro-rata
basis. In addition, this rights offering, including the composition and price of the Unit, was designed to give all of the holders
of our capital stock the opportunity to participate in an equity investment in InsPro Technologies Corporation on substantially
the same economic terms as our last private placement in November 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Effect of Rights Offering on Existing Stockholders</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The ownership interests
and voting interests of the existing stockholders that do not exercise their basic subscription privileges will be diluted. See
&ldquo;Questions and Answers Related to the Rights Offering.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Method of Exercising Subscription Rights</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The exercise of subscription
rights is irrevocable and may not be cancelled or modified. You may exercise your subscription rights as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Subscription
by Registered Holders</I></B>. If you hold an InsPro Technologies Corporation stock certificate, the number of Units you may purchase
pursuant to your basic subscription right is indicated on the enclosed rights certificate. You may exercise your subscription
rights by properly completing and executing the rights certificate and forwarding it, together with your full payment, to us at
the address set forth below under &ldquo;&mdash; Delivery of Subscription Payments,&rdquo; to be received prior to 5:00 p.m.,
Eastern Time, on ______, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Subscription
by Beneficial Owners</I></B>. If you are a beneficial owner of shares of our capital stock that are registered in the name of
a broker, custodian bank or other nominee, you will not receive a rights certificate. Instead, the DTC will issue one subscription
right to the nominee record holder for each 53,155 shares of our common stock, 2,660 shares of Series A Convertible Preferred
Stock and 2,665 shares of Series B Convertible Preferred Stock that you own at the record date. If you are not contacted by your
nominee, you should promptly contact your nominee in order to subscribe for Units in the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Payment Method</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Payments must be made
in full in U.S. currency by:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>check or bank
                                                                                                              draft payable to
                                                                                                              InsPro Technologies
                                                                                                              Corporation, drawn
                                                                                                              upon a U.S. bank;
                                                                                                              or</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>wire transfer
                                                                                                              of immediately available
                                                                                                              funds to an account
                                                                                                              maintained by InsPro
                                                                                                              Technologies Corporation
                                                                                                              for purposes of
                                                                                                              this rights offering.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Payment received after
the expiration of the rights offering will not be honored, and we will return your payment to you, without interest, as soon as
practicable. We will be deemed to receive payment upon:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>clearance of
                                                                                                              any uncertified
                                                                                                              check deposited
                                                                                                              by us into our account
                                                                                                              designated for the
                                                                                                              rights offering;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>receipt by us
                                                                                                              of any certified
                                                                                                              check or bank draft,
                                                                                                              drawn upon a U.S.
                                                                                                              bank; or</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>receipt of collected
                                                                                                              funds in our account
                                                                                                              designated for the
                                                                                                              rights offering.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you elect to exercise
your subscription rights, we urge you to consider using a certified or cashier&rsquo;s check, money order or wire transfer of
funds to ensure that we receive your funds prior to the expiration of the rights offering. If you send an uncertified check, payment
will not be deemed to have been received by us until the check has cleared. If you send a certified check or bank draft, drawn
upon a U.S. bank, or wire or transfer funds directly to our account, payment will be deemed to have been received by us immediately
upon receipt of such instruments or wire transfer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any personal check
used to pay for Units must clear the appropriate financial institutions prior to 5:00 p.m., Eastern Time, on _______, 2013, which
is the expiration of the rights offering. The clearinghouse may require five or more business days. Accordingly, holders that
wish to pay the subscription price by means of an uncertified personal check are urged to make payment sufficiently in advance
of the expiration of the rights offering to ensure such payment is received and clears by such date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You should read the
instruction letter accompanying the rights certificate carefully and strictly follow it. We will not consider your subscription
received until we have received delivery of a properly completed and duly executed rights certificate and payment of the full
subscription amount. The risk of delivery of all documents and payments is borne by you or your nominee, not by InsPro Technologies
Corporation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The method of delivery
of rights certificates and payment of the subscription amount to us will be at the risk of the holders of subscription rights.
If sent by mail, we recommend that you send those certificates and payments by overnight courier or by registered mail, properly
insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to us and clearance
of payment prior to the expiration of the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Unless a rights certificate
provides that the shares of preferred stock and the warrants are to be delivered to the record holder of such rights or such certificate
is submitted for the account of a bank or a broker, signatures on such rights certificate must be guaranteed by an &ldquo;eligible
guarantor institution,&rdquo; as such term is defined in Rule 17Ad-15 of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Medallion Guarantee May Be Required</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Your signature on
your rights certificate must be guaranteed by an eligible institution, such as a member firm of a registered national securities
exchange or a member of the Financial Industry Regulatory Authority, Inc., or a commercial bank or trust company having an office
or correspondent in the United States, unless:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>you provide
                                                                                                              on the rights certificate
                                                                                                              that shares and
                                                                                                              warrants are to
                                                                                                              be delivered to
                                                                                                              you as record holder
                                                                                                              of those subscription
                                                                                                              rights; or</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>you are an eligible
                                                                                                              institution.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Missing or Incomplete Subscription Information</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you hold your shares
of capital stock in the name of a custodian bank, broker, dealer or other nominee, the nominee will exercise the subscription
rights on your behalf in accordance with your instructions. Your nominee may establish a deadline that may be before the 5:00
p.m., Eastern Time ________, 2013 expiration date that we have established for the rights offering. If you send a payment that
is insufficient to purchase the number of Units you requested, or if the number of Units you requested is not specified in the
forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount
of the payment received, subject to the availability of Units under the over-subscription privilege and the elimination of fractional
Units. Any excess subscription payments received by us will be returned, without interest, as soon as practicable following the
expiration of the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Expiration Date and Cancellation Rights</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The subscription period,
during which you may exercise your subscription rights, expires at 5:00 p.m., Eastern Time, on ________, 2013, which is the expiration
of the rights offering. If you do not exercise your subscription rights prior to that time, your subscription rights will expire
and will no longer be exercisable. We will not be required to issue shares of our Series B Convertible Preferred Stock or warrants
to you if we receive your rights certificate or your subscription payment after that time. We have the option to extend the rights
offering without notice to you, although we do not presently intend to do so. We may extend the expiration of the rights offering
at any time prior to the scheduled expiration of the rights offering. If we elect to extend the expiration of the rights offering,
we will issue a press release announcing such extension no later than 9:00 a.m., Eastern Time, on the next business day after
the most recently announced expiration of the rights offering. We reserve the right to amend or modify the terms of the rights
offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you hold your shares
of capital stock in the name of a broker, dealer, custodian bank or other nominee, the nominee will exercise the subscription
rights on your behalf in accordance with your instructions. Please note that the nominee may establish a deadline that may be
before the 5:00 p.m., Eastern Time, ________, 2013, expiration date that we have established for the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may cancel the
rights offering at any time for any reason prior to the time the rights offering expires. If we cancel the rights offering, we
will issue a press release notifying stockholders of the cancellation and all subscription payments received by us will be returned,
without interest or penalty, as soon as practicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Determination of Subscription Price</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The $999.00 per Unit
subscription price was determined by our board of directors based on the per share value of the Series B Convertible Preferred
Stock and warrants (considered in the aggregate) purchased by investors in our last private placement in November 2012. In November
2012, we sold units, consisting of one share of our Series B Convertible Preferred Stock (each share of which is convertible,
at the sole option of the holder, into 20 shares of our common stock) and one five-year warrant to purchase 10 shares of our common
stock, at a per unit price of $3.00. We sold a total of 499,999 units in that offering for an aggregate purchase price of $1.5
million.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In determining the
subscription price, our board of directors considered the overall economic value offered to investors in InsPro Technologies Corporation
in the last private placement. If an investor had invested in the last private placement, for every $999.00 invested, such investor
would have received 333 shares of Series B Convertible Preferred Stock and warrants to purchase 3,330 additional shares of our
common stock at an exercise price of $0.15 per share. As a result, the Units offered in this rights offering consist of 333 shares
of our Series B Convertible Preferred Stock and a warrant to purchase 3,330 of our common stock at a price per Unit of $999.00.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We did not seek or
obtain an opinion of financial advisors in establishing the subscription price. The subscription price will not necessarily be
related to our book value, tangible book value, net worth or any other established criteria of fair value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There is currently
no market for our shares of Series B Convertible Preferred Stock and, unless you choose to convert any shares of preferred stock
you purchase in this offering into shares of common stock, you will not be able to re-sell such shares. We urge you to obtain
a current quote for our common stock and perform an independent assessment of our Series B Convertible Preferred Stock and warrants
before exercising your subscription rights and to make your own assessment of our business and financial condition, our prospects
for the future, and the terms of this rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Terms of Series B Convertible Preferred Stock</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each share of Series
B Convertible Preferred Stock offered in this rights offering is convertible, at the sole discretion of each holder of preferred
stock, into 20 shares of common stock, subject to certain adjustments. The holders of shares of our Series B Convertible Preferred
Stock are entitled to vote, with respect to any question upon which holders of our common stock are entitled to vote, together
with the holders of common stock as one class on an as-converted basis. At such time, if any, as our board of directors declares
a dividend or distribution on the common stock, the holders of preferred stock shall be entitled to receive, for each share of
Series B Convertible Preferred Stock held by them, a dividend or distribution in an amount equal to what such holder of preferred
stock would receive if their shares were converted into shares of common stock. We do not currently intend to pay any cash dividends
to the holders of shares of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, upon
the liquidation, sale or merger of InsPro Technologies Corporation, each share of our Series B Convertible Preferred Stock is
entitled to receive an amount equal to the greater of (A) a liquidation preference equal to the preferred stock original issue
price, subject to certain customary adjustments, or (B) the amount such preferred stock would receive if it participated pari
passu with the holders of our common stock on an as-converted basis. For so long as any shares of Series B Convertible Preferred
Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of preferred stock is required
to approve (Y) any amendment to our certificate of incorporation or bylaws that would adversely alter the voting powers, preferences
or special rights of the Series B Convertible Preferred Stock or (Z) any amendment to our certificate of incorporation to create
any shares of capital stock that rank senior to the Series B Convertible Preferred Stock. In addition to the voting rights described
above, for so long as 1,000,000 shares of Series B Convertible Preferred Stock are outstanding, the vote or consent of the holders
of at least two-thirds of the preferred stock is required to effect or validate any merger, sale of substantially all of the assets
of InsPro Technologies Corporation or other fundamental transaction, unless such transaction, when consummated, will provide the
holders of preferred stock with an amount per share equal to the preferred stock original issue price plus any declared but unpaid
dividends.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Terms of Warrants</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The warrants that
we are offering in this rights offering are in substantially similar form to those warrants purchased by our investors in the
last private placement in November 2012. Each warrant issued as a component of the Units will be a five-year warrant to purchase
3,330 of our common stock at an exercise price of $0.15 per share, subject to our right to call the warrant under certain conditions.
The warrants include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per share during
the first two years following the date of issuance of the warrants, subject to customary exceptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Withdrawal, Amendment and Termination</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We reserve the right
to withdraw the rights offering at any time for any reason. We also may amend or terminate the rights offering at any time before
its completion if our board of directors decides to do so in its sole discretion. If we terminate the rights offering, all affected
subscription rights will expire without value, and all excess subscription payments received by us will be returned, without interest,
as soon as practicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Delivery of Subscription Payments</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The address to which
rights certificates and payments, other than wire transfers, should be mailed or delivered is provided below. If sent by mail,
we recommend that you send documents and payments by overnight courier or by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">InsPro Technologies Corporation</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">150 N. Radnor-Chester Rd.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Suite B-101</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Radnor, PA 19087</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Attn: Francis L. Gillan III</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you deliver subscription
documents or rights certificates in a manner different than that described in this prospectus, we may not honor the exercise of
your subscription rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you have any questions
regarding completing a rights certificate, submitting payment in the rights offering, or questions or requests regarding InsPro
Technologies Corporation or the rights offering in general, please call Francis L. Gillan III, at (484) 654-2200. You may also
contact us with questions by electronic mail at <U>rightsoffering@inspro.com</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Fees and Expenses</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will pay the fees
and expenses of collecting the subscription payments and distributing the share certificates and warrants associated with the
Units. You are responsible for paying any other commissions, fees, taxes or other expenses that you may incur in connection with
the exercise of your subscription rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">No Fractional Shares</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">All Units will be
sold at a purchase price of $999.00 per Unit. We will not issue fractional Units. Fractional Units resulting from the exercise
of the basic subscription rights and the over-subscription privileges will be eliminated by rounding down to the nearest whole
Unit. Any excess subscription payments received by us will be returned, without interest, as soon as practicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Notice to Nominees</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you are a broker,
custodian bank or other nominee holder that holds shares of our capital stock for the account of others on the record date, you
should notify the beneficial owners of the shares for whom you are the nominee of the rights offering as soon as possible to learn
their intentions with respect to exercising their subscription rights. You should obtain instructions from the beneficial owners
of our capital stock. If a registered holder of our capital stock so instructs, you should complete the rights certificate and
submit it to us with the proper subscription payment by the expiration date. You may exercise the number of subscription rights
to which all beneficial owners in the aggregate otherwise would have been entitled had they been direct holders of our capital
stock on the record date, provided that you, as a nominee record holder, make a proper showing to us by submitting the form entitled
&ldquo;Nominee Holder Certification,&rdquo; which is provided with your rights offering materials. If you did not receive this
form, you should contact us to request a copy.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Beneficial Owners</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you are a beneficial
owner of shares of our capital stock and will receive your subscription rights through a broker, custodian bank or other nominee,
we will ask your nominee to notify you of the rights offering. If you wish to exercise your subscription rights, you will need
to have your nominee act for you, as described above. To indicate your decision with respect to your subscription rights, you
should follow the instructions of your nominee. If you wish instead to obtain a separate rights certificate, you should contact
your nominee as soon as possible and request that a rights certificate be issued to you. You should contact your nominee if you
do not receive notice of the rights offering, but you believe you are entitled to participate in the rights offering. We are not
responsible if you do not receive the notice by mail or otherwise from your nominee or if you receive notice without sufficient
time to respond to your nominee by the deadline established by your nominee, which may be before the 5:00 p.m., Eastern Time,
_________, 2013, expiration date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Non-Transferability of Subscription Rights</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The subscription rights
granted to you are non-transferable and, therefore, you may not sell, transfer or assign your subscription rights to anyone. We
will not be listing shares of our Series B Convertible Preferred Stock, the warrants or the subscription rights for trading on
OTCBB or any other stock exchange or market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Validity of Subscriptions</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will resolve all
questions regarding the validity and form of the exercise of your subscription rights, including time of receipt and eligibility
to participate in the rights offering. Our determination will be final and binding. Once made, subscriptions and directions are
irrevocable, and we will not accept any alternative, conditional or contingent subscriptions or directions. We reserve the absolute
right to reject any subscriptions or directions not properly submitted or the acceptance of which would be unlawful. You must
resolve any irregularities in connection with your subscriptions before the subscription period expires, unless waived by us in
our sole discretion. We shall not be under any duty to notify you or your representative of defects in your subscriptions. A subscription
will be considered accepted, subject to our right to withdraw or terminate the rights offering, only when a properly completed
and duly executed rights certificate and any other required documents and the full subscription payment have been received by
us. Our interpretations of the terms and conditions of the rights offering will be final and binding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Escrow Arrangements; Return of Funds</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will hold funds
received in payment for Units in a segregated account pending completion of the rights offering. We will hold this money in escrow
until the rights offering is completed or is withdrawn and cancelled. If the rights offering is cancelled for any reason, all
subscription payments received by us will be returned, without interest or penalty, as soon as practicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Stockholder Rights</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You will have no rights
as a holder of the shares of our Series B Convertible Preferred Stock you purchase in the rights offering until certificates representing
the shares of our Series B Convertible Preferred Stock are issued to you.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">No Revocation or Change</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Once you submit the
rights certificate or have instructed your nominee of your subscription request, you are not allowed to revoke or change the exercise
or request a refund of monies paid. All exercises of subscription rights are irrevocable, even if you learn information about
us that you consider to be unfavorable. You should not exercise your subscription rights unless you are certain that you wish
to purchase Units at the subscription price.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Material U.S. Federal Income Tax Treatment of Rights
Distribution</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">It is the opinion
of our counsel, Morgan, Lewis &amp; Bockius LLP, that you should not recognize income or loss upon receipt or exercise of these
subscription rights to purchase shares of our Series B Convertible Preferred Stock and warrants for the reasons described below
in &ldquo;Material U.S. Federal Income Tax Considerations.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">No Recommendation to Rights Holders</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our board of directors
is making no recommendation regarding your exercise of the subscription rights. Stockholders who exercise subscription rights
risk investment loss on new money invested. You are urged to make your decision based on your own assessment of our business and
financial condition, our prospects for the future and the terms of this rights offering. Please see &ldquo;Risk Factors&rdquo;
for a discussion of some of the risks involved in investing in our common and preferred stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Shares of Our Series B Convertible Preferred Stock
and Warrants Outstanding After the Rights Offering</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of <FONT STYLE="font-size: 10pt">December
31, </FONT>2012, 3,297,378 shares of our Series B Convertible Preferred Stock and warrants to purchase 92,020,447 shares of our
common stock were issued and outstanding. Assuming no other transactions by us involving our Series B Convertible Preferred Stock
or warrants, if the rights offering is fully subscribed through the exercise of the subscription rights, then an additional 832,500
shares of our Series B Convertible Preferred Stock and warrants to purchase 8,325,000 shares of our common stock will be issued
and outstanding after the closing of the rights offering, for a total of 4,129,878 shares of Series B Convertible Preferred Stock
and warrants to purchase 100,345,447 shares of common stock outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">USE OF PROCEEDS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although the actual
amount will depend on participation in the rights offering, we expect that the net proceeds from the rights offering will be approximately
$2.5 million. We intend to use the proceeds of the rights offering for general corporate and working capital purposes, including
for the purpose of funding current operations, discontinued operations and future commitments. Obtaining funding through the rights
offering will allow us additional timing flexibility before we need to raise funds through additional financings or other methods.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To the extent that
we raise less than $2.5 million in net proceeds in the rights offering, we anticipate reducing the amounts of proceeds to be allocated
to the foregoing uses on a pro rata basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">DILUTION</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Purchasers of Units
in the rights offering (and upon exercise of the warrants issued pursuant to this rights offering) will experience an immediate
dilution of the net tangible book value per share of our common stock. Our net tangible book value as of September 30, 2012 was
approximately $1,964,279, or $0.0160 per share of our common stock (based upon 41,354,645 shares of our common stock outstanding,
as adjusted for 25,535,000 shares of common stock underlying the 1,276,750 shares of our Series A Convertible Preferred Stock
and the 55,947,580 shares of common stock underlying the 2,797,379 shares of our Series B Convertible Preferred Stock outstanding).
Net tangible book value per share is equal to our total net tangible book value, which is our total tangible assets less our total
liabilities, divided by the number of shares of our outstanding common stock. Dilution per share equals the difference between
the amount per share of common stock paid by purchasers of Units in the rights offering and the net tangible book value per share
of our common stock immediately after the rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Based on the aggregate
offering of a maximum of 2,500 Units and after deducting estimated offering expenses payable by us of approximately $81,841, and
the application of the estimated $2,415,659 of net proceeds from the rights offering, our pro forma net tangible book value as
of September 30, 2012 would have been approximately $3,880,438 or $0.0278 per share. This represents an immediate increase in
pro forma net tangible book value to existing stockholders of $0.0118 per share and an immediate dilution to purchasers in the
rights offering of $0.1382 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
illustrates this per-share dilution (assuming a fully subscribed for rights offering of 2,500 Units at the subscription price
of $999.00 per Unit but excluding any issuance of shares of common stock to holders of warrants):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 86%; font-size: 10pt; font-weight: bold">Price per Unit</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">999.00</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">Net tangible book value per common share prior to the rights
    offering</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.0160</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">Increase per common share attributable to the rights offering</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.0118</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">Pro forma net tangible book value per common share after
    the rights offering</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.0278</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">Dilution in net tangible book value per common share to purchasers</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.1382</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">CAPITALIZATION</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth our capitalization, cash and cash equivalents:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>on an actual
                                                                                                              basis as of September
                                                                                                              30, 2012; and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>on a pro forma
                                                                                                              as adjusted basis
                                                                                                              to give effect to
                                                                                                              the sale of maximum
                                                                                                              of 2,500 Units in
                                                                                                              this rights offering
                                                                                                              (but excluding any
                                                                                                              issuance of shares
                                                                                                              of common stock
                                                                                                              to holders of warrants),
                                                                                                              assuming a subscription
                                                                                                              price of $999.00
                                                                                                              per Unit, and our
                                                                                                              receipt of the net
                                                                                                              proceeds of $2,415,659
                                                                                                              million from that
                                                                                                              sale after deducting
                                                                                                              estimated offering
                                                                                                              expenses payable
                                                                                                              by us.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This table should
be read in conjunction with our &ldquo;Management&rsquo;s Discussion and Analysis or Plan of Operation&rdquo; and our consolidated
financial statements and the related notes included elsewhere in this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center">September 30, 2012<BR> (Unaudited)</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center">Actual</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font: bold 10pt Times New Roman, Times, Serif; text-align: center">Pro Forma <BR>As Adjusted (1)</TD><TD STYLE="font: bold 10pt Times New Roman, Times, Serif">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt; font-weight: bold">Cash</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">2,091,032</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">4,506,691</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">Total assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">6,491,972</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">8,907,631</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">Total liabilities</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">4,527,693</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">5,027,193</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">Net tangible book value</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">1,964,279</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3,880,438</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">Total shareholders&rsquo; equity</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">1,964,279</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3,880,438</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">Total liabilities and shareholders&rsquo; equity</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">6,491,972</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">8,907,631</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(1) Assumes the rights offering is fully
subscribed for, of which no assurances can be given.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">DESCRIPTION OF SECURITIES</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our authorized capital
stock consists of 300,000,000 shares of common stock, par value $0.001 per share, and 20,000,000 shares of preferred stock, par
value $0.001 per share, 3,437,500 of which are designated as Series A Convertible Preferred Stock and 5,000,000 of which are designated
as Series B Convertible Preferred Stock. As of December 31, 2012, we had 1,276,750 shares of Series A Convertible Preferred Stock
currently issued and outstanding and 300,000 shares of Series A Convertible Preferred Stock reserved for issuance underlying currently
issued and outstanding warrants. As of December 31, 2012, we had 3,297,378 shares of Series B Convertible Preferred Stock currently
issued and outstanding. As of December 31, 2012, we had 41,543,655 shares of common stock issued and outstanding, 92,020,447 shares
of common stock reserved for issuance underlying currently issued and outstanding warrants, 6,210,000 shares of common stock reserved
for issuance underlying currently issued and outstanding options, and 22,786,980 shares of common stock reserved for issuance
under certain of our existing equity compensation plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Common Stock</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Holders of shares
of our common shares are entitled to one vote per share on all matters to be voted upon by the stockholders and are not entitled
to cumulative voting for the election of directors. Holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by our board of directors out of funds legally available therefore, subject to the rights
of the preferred stockholders. We do not currently intend to pay any cash dividends to the holders of common stock. In the event
that we liquidate, dissolve or wind up the Company, the holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities and the preferences of preferred stockholders. Our common stock has no preemptive, conversion or
other subscription rights. There are no redemption or sinking fund provisions applicable to common shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Series A Convertible Preferred Stock</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each share of Series
A Convertible Preferred Stock is convertible, at the sole discretion of each holder of Series A Convertible Preferred Stock, into
20 shares of common stock, subject to certain adjustments. The holders of shares of our Series A Convertible Preferred Stock are
entitled to vote, with respect to any question upon which holders of our common stock are entitled to vote, together with the
holders of common stock as one class on an as-converted basis. At such time, if any, as our board of directors declares a dividend
or distribution on the common stock, the holders of Series A Convertible Preferred Stock shall be entitled to receive, for each
share of Series A Convertible Preferred Stock held by them, a dividend or distribution in an amount equal to what such holder
of Series A Convertible Preferred Stock would receive if their shares were converted into shares of common stock. We do not currently
intend to pay any cash dividends to the holders of shares of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, upon
the liquidation, sale or merger of InsPro Technologies Corporation, each share of our Series A Convertible 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 Convertible Preferred Stock original issue price, subject to certain customary adjustments, or (B) the amount such preferred
stock would receive if it participated pari passu with the holders of our common stock on an as-converted basis. For so long as
any shares of Series A Convertible Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds
of the shares of Series A Convertible Preferred Stock is required to approve (Y) any amendment to our certificate of incorporation
or bylaws that would adversely alter the voting powers, preferences or special rights of the Series A Convertible Preferred Stock
or (Z) any amendment to our certificate of incorporation to create any shares of capital stock that rank senior to the Series
A Convertible Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series A Convertible
Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series A Convertible Preferred
Stock is required to effect or validate any merger, sale of substantially all of the assets of InsPro Technologies Corporation
or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series A Convertible
Preferred Stock with an amount per share equal to two and a half (2.5) times the Series A Convertible Preferred Stock original
issue price.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event of (a)
the sale of all or substantially all of the assets of InsPro Technologies Corporation, (b) any tender offer or exchange pursuant
to which the holders of a majority of common stock exchange such shares for other securities, cash or property or (c) any reclassification
of the common stock pursuant to which the shares of common stock are effectively converted or exchanges for other securities,
cash or property, if we do not effect a dissolution within 90 days after such event, the holder of a majority of the shares of
Series A Convertible Preferred Stock may require, within 120 days of such event, to redeem all outstanding shares of Series A
Convertible Preferred Stock at a price per share equal to two and a half (2.5) times the Series A Convertible Preferred Stock
original issue price, subject to certain customary adjustments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Except as noted above
our shares of Series A Convertible Preferred Stock have no other conversion, preemptive or other subscription rights. There are
no sinking fund provisions applicable to preferred stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Series B Convertible Preferred Stock</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each share of Series
B Convertible Preferred Stock is convertible, at the sole discretion of each holder of Series B Convertible Preferred Stock, into
20 shares of common stock, subject to certain adjustments. The holders of shares of our Series B Convertible Preferred Stock are
entitled to vote, with respect to any question upon which holders of our common stock are entitled to vote, together with the
holders of common stock as one class on an as-converted basis. At such time, if any, as our board of directors declares a dividend
or distribution on the common stock, the holders of Series B Convertible Preferred Stock shall be entitled to receive, for each
share of Series B Convertible Preferred Stock held by them, a dividend or distribution in an amount equal to what such holder
of Series B Convertible Preferred Stock would receive if their shares were converted into shares of common stock. We do not currently
intend to pay any cash dividends to the holders of shares of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, upon
the liquidation, sale or merger of InsPro Technologies Corporation, each share of our Series B Convertible Preferred Stock is
entitled to receive an amount equal to the greater of (A) a liquidation preference equal to the Series B Convertible Preferred
Stock original issue price, subject to certain customary adjustments, or (B) the amount such Series B Convertible Preferred Stock
would receive if it participated pari passu with the holders of our common stock on an as-converted basis. For so long as any
shares of Series B Convertible Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the
shares of Series B Convertible Preferred Stock is required to approve (Y) any amendment to our certificate of incorporation or
bylaws that would adversely alter the voting powers, preferences or special rights of the Series B Convertible Preferred Stock
or (Z) any amendment to our certificate of incorporation to create any shares of capital stock that rank senior to the Series
B Convertible Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series B Convertible
Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series B Convertible Preferred
Stock is required to effect or validate any merger, sale of substantially all of the assets of InsPro Technologies Corporation
or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series B Convertible
Preferred Stock with an amount per share equal to the Series B Convertible Preferred Stock original issue price, plus any declared
but unpaid dividends.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Except as noted above
our shares of Series B Convertible Preferred Stock have no other conversion, preemptive or other subscription rights. There are
no sinking fund provisions applicable to Series B Convertible Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Warrants</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31,
2012, there were outstanding (i) warrants to purchase up to 67,020,447 shares of our common stock at an exercise price per share
of $0.15 and (ii) warrants to purchase up to 25,000,000 shares of our common stock at an exercise price per share of $0.20.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with
our private placement in March 2008, we issued to investors five-year warrants to purchase up to 6,250,000 shares of our common
stock at $0.80 per share, which warrants were subsequently adjusted following the closing of our private placement in January
2009 to provide for the purchase of up to 18,750,000 shares of our common stock at an exercise price of $0.20 per share, per the
anti-dilution provisions contained in such warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The warrants to be
issued as part of the Units upon exercise of the subscription rights will contain substantially the same terms as the warrants
issued to the investors in our November 2012 private placement. Each warrant issued as a component of the Units will be a five-year
warrant to purchase 3,330 of our common stock at an exercise price of $0.15 per share, subject to our right to call the warrant
under certain conditions. The warrants include full ratchet anti-dilution adjustment provisions for issuances of securities below
$0.15 per share during the first two years following the date of issuance of the warrants, subject to customary exceptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31,
2012, there were outstanding warrants to purchase up to 300,000 shares of our Series A Convertible Preferred Stock at an exercise
price per share of $4.00.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Prior to exercise,
the warrants do not confer upon holders any voting or any other rights as a stockholder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">MARKET FOR OUR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Market Information</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our common stock has
been quoted on the OTCBB since December 6, 2010 under the symbol ITCC.OB and from December 13, 2005 until December 3, 2010 under
the symbol HBDT.OB. Prior to December 13, 2005, there was no active market for our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth the high and low bid prices for our common stock for the periods indicated, as reported by the OTCBB. The prices state
inter-dealer quotations, which do not include retail mark-ups, mark-downs or commissions. Such prices do not necessarily represent
actual transactions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 1pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">High</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">Low</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; border-bottom: Black 1pt solid">2010:</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt">First quarter, ended March 31, 2010</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">0.12</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">0.04</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Second quarter, ended June 30, 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.11</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.04</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Third quarter, ended September 30, 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.18</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.04</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Fourth quarter, ended December 31, 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.51</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.05</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">2011:</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">First quarter, ended March 31, 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.10</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.05</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Second quarter, ended June 30, 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.10</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.02</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Third quarter, ended September 30, 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.09</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.02</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Fourth quarter, ended December 31, 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.045</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.0095</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 1pt">2012:</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">First quarter, ended March 31, 2012</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.034</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Second quarter, ended June 30, 2012</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.100</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Third quarter, ended September 30, 2012</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.100</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.025</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Fourth quarter, through December 28, 2012</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.090</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.040</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Holders of Record</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Based on information
furnished by our transfer agent, as of December 31, 2012, we had approximately 108 holders of record of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Dividends</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-weight: normal; font-style: normal">We
have not declared any cash dividends on our common stock during the last two fiscal years.</FONT></P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">BUSINESS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Overview</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">Overview</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are a technology
company that provides software applications for use by insurance administrators in the insurance industry. Our business focuses
primarily on our InsPro Enterprise software application.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We acquired Atiam
Technologies, L.P. on October 1, 2007. This entity, which changed its name to InsPro Technologies, LLC on May 14, 2009, developed,
sells and supports our InsPro Enterprise software application. InsPro Enterprise is a comprehensive, web-based insurance administration
software application, which was introduced by Atiam Technologies, L.P. (now our InsPro Technologies, LLC subsidiary) in 2004.
InsPro Enterprise clients include insurance carriers and third party administrators. We market InsPro Enterprise as a licensed
software application, and we realize revenue from the sale of the software licenses, application service provider fees, software
maintenance fees and consulting and implementation services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During 2005 through
October 1, 2007 our operations were primarily that of our former Telesales and Insurint businesses. We effectively sold our former
Telesales business in 2009 and our former Insurint business in 2010. Our former Telesales and Insurint businesses are now classified
as part of our discontinued operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">InsPro Enterprise</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><U>Product Evolution and Development</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Technologies,
LLC, or InsPro Technologies, and its predecessor, Systems Consulting Associates, Inc., or SCA, was founded in 1986 by Robert J.
Oakes as a programming and consulting services company. In 1988, SCA entered into a long-term contract with Provident Mutual Insurance
Company to develop, maintain, install, support and enhance IMACS, which was an insurance direct marketing and administration software
system. IMACS was the precursor of InsPro Enterprise. InsPro Technologies dedicated four years, from 2001 to 2005, to developing
its principal product, InsPro Enterprise, which is a comprehensive, scalable and modular web-based insurance marketing, claims
administration and policy servicing platform.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><U>Product and Services</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We offer InsPro Enterprise
on both a licensed and an ASP (Application Service Provider) basis. InsPro 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the nine months
ended September 30, 2012, we earned $8,835,150 in revenue. We earned 36% and 12% of our revenue from our two largest InsPro clients.
During 2011, we earned $9,057,816 in revenue. We earned 29% and 20% of our revenue from our two largest InsPro clients.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Enterprise
incorporates a modular design, which enables the customer to purchase only the functionality needed, thus minimizing the customer&rsquo;s
implementation cost and time necessary to implement InsPro Enterprise. InsPro Enterprise can be rapidly tailored to the requirements
of a wide range of customers from the largest insurance companies and marketing organizations to the smallest third party administrators,
operating in environments ranging from a single server environment to the mainframe installations. InsPro Enterprise currently
supports a wide range of insurance distribution channels, including the Internet, traditional direct marketing, agent-generated,
individual and group plans, worksite and association-booked business, and supports underwritten as well as guaranteed issue insurance
products including long term care, Medicare supplement, critical illness, long and short term disability, whole and term life,
comprehensive major, hospital indemnity and accidental death and dismemberment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">An InsPro Enterprise
software license entitles the purchaser to a perpetual license to a copy of the InsPro Enterprise software 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 InsPro Enterprise, paying only for that capacity required to support their business. ASP hosting clients
access an instance of InsPro Enterprise installed on our servers located at InsPro Technologies&rsquo; offices or at a third party&rsquo;s
site. The ASP Hosting Service can also enable a client to outsource their application management of their perpetually licensed
InsPro Enterprise software to InsPro Technologies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Software maintenance
fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and the InsPro Enterprise
Help Desk.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Consulting and implementation
services are generally associated with the implementation of an 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Enterprise
software agreements with our clients often involve 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 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. Maintenance revenue, which pertains to post-contract customer support including technical support
and unspecified when-and-if available software upgrades, is recognized ratably over the maintenance agreement term. 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><U>Sales, Marketing and Operations</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Technologies
markets its products and services directly to prospective insurance carriers and third party administrators via trade shows, advertising
in industry publications and direct mail.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Technologies
also provides professional services to its clients, which include InsPro system implementation, legacy system migration to InsPro,
InsPro application management, web development, InsPro help desk and 24x7 hosting service support.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Competition</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The market for insurance
policy administration systems and services is very competitive, rapidly evolving, highly fragmented and subject to technological
change. Many of our competitors are more established than we are and have greater name recognition, a larger customer base and
greater financial, technical and marketing resources than InsPro Technologies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Technologies
is focused on the senior health, disability, affinity and association segments. InsPro Technologies competes with such concerns
as International Business Machines Corporation (Genelco Software), Computer Sciences Corporation (FutureFirst), LifePro and Fiserv
Inc. (ID3), as well as with such smaller enterprises as Management Data, Inc. To compete we use best practice technologies and
methods incorporated into InsPro Enterprise, which provides customers with a user-friendly, flexible, modular and cost-effective
insurance administrative software system. We also compete on price with a typical InsPro software license fee ranging from $500,000
to $1,700,000. InsPro Enterprise&rsquo;s modular design, scalability and ASP hosting service option makes InsPro Enterprise a
compelling insurance administrative system from small third party administrators to the largest insurance carriers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Employees</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31,
2012 we had 73 full time employees. None of our employees are members of any labor union and we are not a party to any collective
bargaining agreement. We believe that the relationship between our management and our employees is good.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Intellectual Property and Proprietary Rights</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We rely on a combination
of trademark, copyright and trade secret laws in the United States and other jurisdictions as well as confidentiality procedures
and contractual provisions to protect our proprietary technology and our brand.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Corporate Information</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We were incorporated
under the laws of the state of Nevada on October 21, 2004 as Darwin Resources Corp., or Darwin-NV, an exploration stage company
engaged in mineral exploration. On November 22, 2005, Darwin-NV merged with and into its newly-formed wholly-owned subsidiary,
Darwin Resources Corp., a Delaware corporation, or Darwin-DE, solely for the purpose of changing the company&rsquo;s state of
incorporation from Nevada to Delaware. On November 23, 2005, HBDC II, Inc., a newly-formed wholly-owned subsidiary of Darwin-DE,
was merged with and into Health Benefits Direct Corporation, a privately-held Delaware corporation engaged in direct marketing
and distribution of health and life insurance and related products primarily over the Internet, and the name of the resulting
entity was changed from Health Benefits Direct Corporation to HBDC II, Inc. Following this merger, Darwin-DE changed its name
to Health Benefits Direct Corporation and, as a result, HBDC II, Inc. became our wholly-owned subsidiary. On November 29, 2010,
Health Benefits Direct Corporation changed its name to InsPro Technologies Corporation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our principal executive
offices are located at 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087. Our telephone number is (484) 654-2200.
The principal offices of our wholly-owned subsidiary, InsPro Technologies, LLC, are located at 130 Baldwin Tower, Eddystone, PA
19022 and its web site is www.inspro.com.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Investor Information</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">All periodic and current
reports, registration statements and other material that we are required to file with the Securities and Exchange Commission,
or the Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, may be obtained
free of charge by writing to us at InsPro Technologies Corporation, 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania
19087 or e-mailing us at <U>finance@inspro.com</U>. Such documents are available as soon as reasonably practicable after electronic
filing of the material with the Commission. Our Internet websites and the information contained therein or connected thereto are
not intended to be incorporated into this Annual Report on Form 10-K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The public may also
read and copy any materials we have filed with the Commission at the Commission&rsquo;s Public Reference Room at 100 F Street,
NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission
at 1-800-SEC-0330. The Commission maintains an Internet site, www.sec.gov, which contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the Commission.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Properties</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We do not own any
real estate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We lease 7,414 square
feet of office space in Radnor, Pennsylvania. We lease this office space under a lease agreement with Radnor Properties-SDC, L.P.
The term of the lease commenced on November 1, 2006, and will expire on March 31, 2017. The monthly base rent increases every
12 months, starting at approximately $13,466 and ending at approximately $21,531.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We also lease approximately
17,567 square feet of space in Eddystone, Pennsylvania. We lease this office space under a lease agreement with BPG Officer VI
Baldwin Tower L.P. The term of this lease commenced on August 1, 2007, and will expire on January 31, 2017. The monthly rent increases
every 12 months, starting at approximately $8,500 and ending at approximately $27,814.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Legal Proceedings</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are involved in
various investigations, claims and lawsuits arising in the normal conduct of our business, none of which, in our opinion, will
harm our business. We cannot assure 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">MANAGEMENT&rsquo;S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Overview</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The current operations
of InsPro Technologies Corporation (the &ldquo;Company&rdquo;, &ldquo;we&rdquo;, &ldquo;us&rdquo; or &ldquo;our&rdquo;) consist
of the operations of our wholly owned InsPro Technologies, LLC subsidiary (&ldquo;InsPro Technologies&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Enterprise
is a comprehensive, web-based insurance administration software application. InsPro Enterprise was introduced by Atiam Technologies,
L.P. (now our InsPro Technologies, LLC subsidiary) 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 the sale of
the software licenses, application service provider fees, software maintenance fees and professional services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Critical Accounting Policies</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Financial Reporting
Release No. 60, which was released by the Securities and Exchange Commission (the &ldquo;Commission&rdquo;), 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Use of Estimates -
Management's Discussion and Analysis is based upon the Company&rsquo;s consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated
financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these
estimates, including those related to allowances for doubtful accounts receivable and long-lived assets such as intangible assets.
Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Significant estimates in 2012 and 2011 include the allowance for doubtful accounts,
stock-based compensation, the useful lives of property and equipment and intangible assets, accrued expenses pertaining to abandoned
facilities, warrant liability and revenue recognition. Actual results may differ from these estimates under different assumptions
or conditions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Technologies
offers InsPro Enterprise on a licensed and an application service provider (&ldquo;ASP&rdquo;) 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 InsPro Technologies&rsquo; servers located at InsPro Technologies&rsquo; office or at a third party&rsquo;s
site.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Software maintenance
fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and the InsPro Enterprise
Help Desk.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">InsPro Technologies
revenue is generally recognized under 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 (&ldquo;PCS&rdquo;), 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">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 module, we allocate the total arrangement fee
among the modules based on the relative fair value of each of the modules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The unearned portion
of the Company&rsquo;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">RESULTS OF OPERATIONS FOR THREE MONTHS
ENDED SEPTEMBER 30, 2012 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2011</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Revenues</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the three months ended September 30,
2012 (&ldquo;Third Quarter 2012&rdquo;), we earned revenues of $3,372,990 compared to $1,699,802 for the three months ended September
30, 2011 (&ldquo;Third Quarter 2011&rdquo;), an increase of $1,673,188 or 98%. Revenues include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-size: 10pt">&nbsp;</TD><TD NOWRAP STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Three Months Ended
    September 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Professional services</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">2,361,674</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">933,017</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">ASP revenue</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">752,525</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">562,374</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Maintenance revenue</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">258,791</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">197,290</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Sub-leasing and other revenue</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">7,121</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Total</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 3px double; font: 10pt Times New Roman, Times, Serif; text-align: left">$</TD><TD STYLE="border-bottom: Black 3px double; font: 10pt Times New Roman, Times, Serif; text-align: right">3,372,990</TD><TD STYLE="padding-bottom: 2.5pt; font: 10pt Times New Roman, Times, Serif; text-align: left; border-bottom: Black 3px double">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt; border-bottom: Black 3px double">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 3px double; font: 10pt Times New Roman, Times, Serif; text-align: left">$</TD><TD STYLE="border-bottom: Black 3px double; font: 10pt Times New Roman, Times, Serif; text-align: right">1,699,802</TD><TD STYLE="padding-bottom: 2.5pt; font: 10pt Times New Roman, Times, Serif; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; background-color: White">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; background-color: White">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In Third Quarter
                                                                                                               2012 our professional
                                                                                                               services revenue
                                                                                                               increased $1,428,657
                                                                                                               or 153% as a result
                                                                                                               of higher implementation
                                                                                                               services for four
                                                                                                               new clients in
                                                                                                               2012 partially
                                                                                                               offset by lower
                                                                                                               post implementation
                                                                                                               services for existing
                                                                                                               clients. Implementation
                                                                                                               services included
                                                                                                               assisting clients
                                                                                                               in setting up their
                                                                                                               insurance products
                                                                                                               in InsPro Enterprise,
                                                                                                               providing modifications
                                                                                                               to InsPro Enterprise&rsquo;s
                                                                                                               functionality to
                                                                                                               support the client&rsquo;s
                                                                                                               business, interfacing
                                                                                                               InsPro Enterprise
                                                                                                               with the client&rsquo;s
                                                                                                               other systems,
                                                                                                               automation of client
                                                                                                               correspondence
                                                                                                               to their customers
                                                                                                               and data conversion
                                                                                                               from the client&rsquo;s
                                                                                                               existing systems
                                                                                                               to InsPro Enterprise.
                                                                                                               Post implementation
                                                                                                               services include
                                                                                                               these same services
                                                                                                               to existing clients
                                                                                                               supporting their
                                                                                                               ongoing utilization
                                                                                                               of InsPro Enterprise.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In Third Quarter
                                                                                                               2012 our ASP revenue
                                                                                                               increased $190,151
                                                                                                               or 34% as a result
                                                                                                               of increased fees
                                                                                                               from ongoing and
                                                                                                               recent implementations
                                                                                                               of InsPro Enterprise
                                                                                                               and increased fees
                                                                                                               from several existing
                                                                                                               clients. ASP hosting
                                                                                                               service enables
                                                                                                               a client to either
                                                                                                               lease InsPro Enterprise
                                                                                                               software, paying
                                                                                                               only for that capacity
                                                                                                               required to support
                                                                                                               their business,
                                                                                                               or for a client
                                                                                                               to outsource the
                                                                                                               operation of their
                                                                                                               licensed InsPro
                                                                                                               Enterprise installation
                                                                                                               to the Company.
                                                                                                               ASP hosting clients
                                                                                                               access InsPro Enterprise
                                                                                                               installed on the
                                                                                                               Company&rsquo;s
                                                                                                               owned servers located
                                                                                                               at the Company&rsquo;s
                                                                                                               office or at a
                                                                                                               third party&rsquo;s
                                                                                                               site.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In Third Quarter
                                                                                                               2012 our maintenance
                                                                                                               revenue increased
                                                                                                               $61,501 or 31%
                                                                                                               as a result of
                                                                                                               increased fees
                                                                                                               from a client&rsquo;s
                                                                                                               recently implemented
                                                                                                               InsPro Enterprise
                                                                                                               software partially
                                                                                                               offset by decreased
                                                                                                               fees from an existing
                                                                                                               client</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>We earned sub-leasing
                                                                                                               revenue from the
                                                                                                               sub leasing of
                                                                                                               space in our Radnor
                                                                                                               office to a third
                                                                                                               party, which is
                                                                                                               on a month to month
                                                                                                               basis. The Company&rsquo;s
                                                                                                               sublease revenue
                                                                                                               varies month to
                                                                                                               month based on
                                                                                                               the amount of space
                                                                                                               the Company&rsquo;s
                                                                                                               sub-tenant utilized</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Cost of Revenues</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our cost of revenues for Third Quarter
2012 was $3,237,929 as compared to $1,587,656 for Third Quarter 2011 for an increase of $1,650,273 or 104% as compared to Third
Quarter 2011. Cost of revenues consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-size: 10pt">&nbsp;</TD><TD NOWRAP STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Three Months Ended
    September 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Salaries, employee benefits and related taxes</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,677,420</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,131,251</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Professional fees</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,382,394</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">405,495</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Rent, utilities, telephone and communications</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">115,119</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">85,357</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Other cost of revenues</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">62,996</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(34,447</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 3px double; font: 10pt Times New Roman, Times, Serif; text-align: left">$</TD><TD STYLE="border-bottom: Black 3px double; font: 10pt Times New Roman, Times, Serif; text-align: right">3,237,929</TD><TD STYLE="padding-bottom: 2.5pt; font: 10pt Times New Roman, Times, Serif; text-align: left; border-bottom: Black 3px double">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt; border-bottom: Black 3px double">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 3px double; font: 10pt Times New Roman, Times, Serif; text-align: left">$</TD><TD STYLE="border-bottom: Black 3px double; font: 10pt Times New Roman, Times, Serif; text-align: right">1,587,656</TD><TD STYLE="padding-bottom: 2.5pt; font: 10pt Times New Roman, Times, Serif; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In Third Quarter
                                                                                                               2012 our salaries,
                                                                                                               employee benefits
                                                                                                               and related taxes
                                                                                                               component of cost
                                                                                                               of revenues increased
                                                                                                               $546,169 or 48%
                                                                                                               as compared to
                                                                                                               Third Quarter 2011.
                                                                                                               Salaries, employee
                                                                                                               benefits and related
                                                                                                               taxes increased
                                                                                                               primarily a result
                                                                                                               of increased employee
                                                                                                               staffing related
                                                                                                               to the increase
                                                                                                               in the number of
                                                                                                               InsPro Technologies&rsquo;
                                                                                                               clients and to
                                                                                                               a lesser extent
                                                                                                               as a result of
                                                                                                               $220,691 of post
                                                                                                               employment expense
                                                                                                               pertaining to a
                                                                                                               Separation of Employment
                                                                                                               Agreement and General
                                                                                                               Release between
                                                                                                               the Company and
                                                                                                               InsPro Technologies&rsquo;
                                                                                                               and a former vice
                                                                                                               president of InsPro
                                                                                                               Technologies.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In Third Quarter
                                                                                                               2012 our professional
                                                                                                               fees component
                                                                                                               of cost of revenues
                                                                                                               increased $976,899
                                                                                                               or 241% as compared
                                                                                                               to Third Quarter
                                                                                                               2011. Professional
                                                                                                               fees increased
                                                                                                               as a result of
                                                                                                               increased utilization
                                                                                                               of several outside
                                                                                                               consulting firms,
                                                                                                               which are assisting
                                                                                                               us with modifications
                                                                                                               to InsPro Enterprise&rsquo;s
                                                                                                               functionality and
                                                                                                               new clients&rsquo;
                                                                                                               implementation
                                                                                                               of InsPro Enterprise.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In Third Quarter
                                                                                                               2012 our rent,
                                                                                                               utilities, telephone
                                                                                                               and communications
                                                                                                               component of cost
                                                                                                               of revenues increased
                                                                                                               $29,762 or 35%
                                                                                                               as compared to
                                                                                                               Third Quarter 2011.
                                                                                                               The increase was
                                                                                                               the result of higher
                                                                                                               telephone and communications
                                                                                                               costs and higher
                                                                                                               utilities and building
                                                                                                               expenses pertaining
                                                                                                               to InsPro Technologies
                                                                                                               office.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In Third Quarter
                                                                                                               2012 our other
                                                                                                               cost of revenues
                                                                                                               component of cost
                                                                                                               of revenues increased
                                                                                                               $97,443 or 283%
                                                                                                               as compared to
                                                                                                               Third Quarter 2011.
                                                                                                               The increase was
                                                                                                               the result of a
                                                                                                               non recurring $160,029
                                                                                                               expense credit
                                                                                                               in Third Quarter
                                                                                                               2011 pertaining
                                                                                                               to the settlement
                                                                                                               of amounts owed
                                                                                                               to a vendor partially
                                                                                                               offset by cost
                                                                                                               reduction initiatives
                                                                                                               pertaining to computer
                                                                                                               processing. Other
                                                                                                               cost of revenues
                                                                                                               consisted of computer
                                                                                                               processing incurred
                                                                                                               primarily to provide
                                                                                                               ASP hosting services,
                                                                                                               hardware and software,
                                                                                                               travel and entertainment,
                                                                                                               and office expenses.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Gross Profit (Loss)</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a result of the aforementioned factors,
we reported a gross profit of $135,061 in Third Quarter 2012 as compared to a gross profit of $112,146 in Third Quarter 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Selling, General and Administrative Expenses</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our selling, general and administrative
expenses for Third Quarter 2012 was $1,375,576 as compared to $1,293,373 for Third Quarter 2011 for an increase of $82,202 or
6% as compared to Third Quarter 2011. Selling, marketing and administrative expenses consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-size: 10pt">&nbsp;</TD><TD NOWRAP STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-size: 10pt; text-align: center">For the Three Months Ended September 30,</TD><TD NOWRAP STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">2012</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; font-size: 10pt; text-align: left; padding-left: 5.4pt">Salaries, employee benefits and related taxes</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; text-align: right">580,579</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; text-align: right">765,496</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 5.4pt">Advertising and other marketing</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">84,802</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">27,199</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 5.4pt">Depreciation and amortization</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">255,316</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">166,521</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 5.4pt">Rent, utilities, telephone and communications</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">99,652</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">93,526</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 5.4pt">Professional fees</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">176,905</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">99,199</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Other general and administrative</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">178,323</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">141,432</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt; padding-left: 5.4pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font: 10pt Times New Roman, Times, Serif; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font: 10pt Times New Roman, Times, Serif; text-align: right">1,375,577</TD><TD STYLE="padding-bottom: 2.5pt; font: 10pt Times New Roman, Times, Serif; text-align: left">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font: 10pt Times New Roman, Times, Serif; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font: 10pt Times New Roman, Times, Serif; text-align: right">1,293,373</TD><TD STYLE="padding-bottom: 2.5pt; font: 10pt Times New Roman, Times, Serif; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-left: 5.4pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In Third Quarter 2012 we incurred salaries,
employee benefits and related taxes of $580,579 as compared to $765,496 for Third Quarter 2011, a decrease of $184,917 or 24%.
<FONT STYLE="color: black">The decrease is primarily the result of lower corporate staffing.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Depreciation and amortization expense
consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-size: 10pt">&nbsp;</TD><TD NOWRAP STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Three Months Ended
    September 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; font-size: 10pt; text-align: left">Amortization of intangibles acquired as a result of the InsPro acquisition</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; text-align: right">86,683</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; text-align: right">86,684</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Depreciation expense</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">168,633</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">79,837</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 5.4pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt; padding-left: 5.4pt">Total</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">255,316</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">166,521</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 5.4pt; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; background-color: White">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; background-color: White">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>We incurred
                                                                                                              amortization expense
                                                                                                              pertaining to the
                                                                                                              intangible assets
                                                                                                              acquired from InsPro
                                                                                                              Technologies (formerly
                                                                                                              Atiam Technologies,
                                                                                                              L.P.) on October
                                                                                                              1, 2007.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In Third Quarter
                                                                                                              2012 we incurred
                                                                                                              depreciation expense
                                                                                                              of $168,632 as compared
                                                                                                              to $79,837 in Third
                                                                                                              Quarter 2011. The
                                                                                                              increase was primarily
                                                                                                              due to assets acquired
                                                                                                              on April 30, 2012,
                                                                                                              whereby InsPro Technologies
                                                                                                              entered into an
                                                                                                              Application Provider
                                                                                                              Hosting Agreement
                                                                                                              (&ldquo;Micro Focus
                                                                                                              Agreement&rdquo;)
                                                                                                              with Micro Focus
                                                                                                              (US) Inc. (&ldquo;Micro
                                                                                                              Focus&rdquo;). As
                                                                                                              part of the Micro
                                                                                                              Focus Agreement
                                                                                                              InsPro Technologies
                                                                                                              expanded its perpetual
                                                                                                              license rights to
                                                                                                              a Micro Focus software
                                                                                                              product used by
                                                                                                              InsPro Technologies
                                                                                                              in conjunction with
                                                                                                              hosting its InsPro
                                                                                                              Enterprise software.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In Third Quarter 2012 our professional
fees increased as a result of higher legal fees associated with our Loan and Security Agreement with Silicon Valley Bank, technology
consulting expenses, human resource management consulting and accounting fees for tax preparation services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In Third Quarter 2012 our other expense
increased primarily as a result of increased maintenance expense on computer hardware and software especially costs associated
with assets acquired in connection with the Micro Focus Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Loss from operations</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a result of the aforementioned factors,
we reported a loss from operations of $1,240,516 in Third Quarter 2012 as compared to a loss from operations of $1,181,227 in
Third Quarter 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Gain on discontinued operations</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Results from discontinued operations were
as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Three Months Ended September
    30,</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Revenues:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 62%; font-size: 10pt; text-align: left">Commission and other revenue from carriers</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 15%; font-size: 10pt; text-align: right">14,135</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 15%; font-size: 10pt; text-align: right">34,310</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Transition policy commission pursuant to the Agreement</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">131,579</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">176,028</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">145,714</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">210,338</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Operating expenses:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Other general and administrative</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">6,896</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">11,809</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">6,896</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">11,809</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0.12in">Gain from discontinued operations</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 3px double">$</TD><TD STYLE="font-size: 10pt; text-align: right">138,818</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">198,529</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For Third Quarter 2012 we earned revenues
from discontinued operations of $145,714 as compared to $210,338 in the Third Quarter 2011, a decrease of $64,624 or 31%. Revenues
include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In Third Quarter
                                                                                                               2012 our commission
                                                                                                               and other revenue
                                                                                                               from carriers decreased
                                                                                                               due to the declines
                                                                                                               in our telesales
                                                                                                               call center produced
                                                                                                               agency business.
                                                                                                               We continue to
                                                                                                               receive commissions
                                                                                                               from carriers other
                                                                                                               than certain carriers
                                                                                                               and commissions
                                                                                                               on policies other
                                                                                                               than transferred
                                                                                                               policies, which
                                                                                                               were transferred
                                                                                                               to the acquirer.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>On February
                                                                                                               20, 2009, the Company
                                                                                                               entered into and
                                                                                                               completed the sale
                                                                                                               of the agency business
                                                                                                               to eHealth Insurance
                                                                                                               Services, Inc.,
                                                                                                               an unaffiliated
                                                                                                               third party, pursuant
                                                                                                               to the terms of
                                                                                                               a Client Transition
                                                                                                               Agreement. In Third
                                                                                                               Quarter 2012 our
                                                                                                               transition policy
                                                                                                               commission pursuant
                                                                                                               to the agreement
                                                                                                               decreased due to
                                                                                                               the declines in
                                                                                                               our telesales call
                                                                                                               center produced
                                                                                                               agency business.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Total operating expenses of discontinued
operations for Third Quarter 2012 was $6,896 as compared to $11,809 for Third Quarter 2011. The primary reason for the decrease
is the expiration of the lease for our former Florida office and the elimination of rent and other associated costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Gain from discontinued operations</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a result of the aforementioned factors,
we reported a gain from discontinued operations of $138,818 or $0.00 gain from discontinued operations per share in Third Quarter
2012 as compared to a gain from discontinued operations of $198,529 or $0.01 gain from discontinued operations per share in Third
Quarter 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Other income (expenses)</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective September 30, 2012, the full
ratchet anti-dilution provisions pertaining to warrants issued during 2009 and 2010 expired. Consequently, the Company has determined
that effective September 30, 2012, all of the Company&rsquo;s issued and outstanding warrants qualify for a scope exception under
ASC 815-40-15 as they are indexed to the Company&rsquo;s stock. Effective September 30, 2012, the Company recorded the elimination
of the warrant liability by recording a debit to warrant liability in the amount of $6,182,309 and a credit to additional paid
in capital in the amount of $6,182,309. The gain in the Third Quarter 2011 represents the mark to market adjustments for the change
in fair value of warrants, which contain provisions that adjust the exercise price of these warrants in the event we issue our
common stock or other securities convertible into our common stock at price lower than the exercise price of these warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Interest income is attributable to interest-bearing
cash deposits. The decrease in interest income is the result of a decline in interest rates and a decline in cash balances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Interest expense is attributable to interest
on accounts payable, capital leases and note payable for premium financing on a portion of the Company&rsquo;s insurance coverages.
The increase in interest expense is the result of an increase in notes payable for premium financing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">RESULTS OF OPERATIONS FOR NINE MONTHS
ENDED SEPTEMBER 30, 2012 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2011</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Revenues</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the nine months ended September 30,
2012 (&ldquo;2012 To Date&rdquo;), we earned revenues of $8,835,150 as compared to $5,636,023 for the nine months ended September
30, 2011 (&ldquo;2011 To Date&rdquo;), an increase of $3,199,127 or 57%. Revenues include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Nine Months Ended September
    30,</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; text-align: left">Professional services</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 15%; font-size: 10pt; text-align: right">5,824,189</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 6%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 15%; font-size: 10pt; text-align: right">3,231,819</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">ASP revenue</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,299,290</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,458,578</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Sales of software licenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">335,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Maintenance revenue</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">704,021</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">592,365</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Sub-leasing and other revenue</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">7,650</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">18,261</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Total</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">8,835,150</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">5,636,023</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2012 To Date
                                                                                                              our professional
                                                                                                              services revenue
                                                                                                              increased $2,592,370
                                                                                                              or 80% as a result
                                                                                                              of higher implementation
                                                                                                              services from four
                                                                                                              new clients in 2012
                                                                                                              partially offset
                                                                                                              by lower post implementation
                                                                                                              services for existing
                                                                                                              clients. Implementation
                                                                                                              services included
                                                                                                              assisting clients
                                                                                                              in setting up their
                                                                                                              insurance products
                                                                                                              in InsPro Enterprise,
                                                                                                              providing modifications
                                                                                                              to InsPro Enterprise&rsquo;s
                                                                                                              functionality to
                                                                                                              support the client&rsquo;s
                                                                                                              business, interfacing
                                                                                                              InsPro Enterprise
                                                                                                              with the client&rsquo;s
                                                                                                              other systems, automation
                                                                                                              of client correspondence
                                                                                                              to their customers
                                                                                                              and data conversion
                                                                                                              from the client&rsquo;s
                                                                                                              existing systems
                                                                                                              to InsPro Enterprise.
                                                                                                              Post implementation
                                                                                                              services include
                                                                                                              these same services
                                                                                                              to existing clients
                                                                                                              supporting their
                                                                                                              ongoing utilization
                                                                                                              of InsPro Enterprise.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2012 To Date
                                                                                                              our ASP revenue
                                                                                                              increased $840,712
                                                                                                              or 57% as a result
                                                                                                              of increased fees
                                                                                                              from recent implementations
                                                                                                              of InsPro Enterprise
                                                                                                              to several clients
                                                                                                              and increased fees
                                                                                                              from several existing
                                                                                                              clients. ASP hosting
                                                                                                              service enables
                                                                                                              a client to either
                                                                                                              lease InsPro Enterprise
                                                                                                              software, paying
                                                                                                              only for that capacity
                                                                                                              required to support
                                                                                                              their business,
                                                                                                              or for a client
                                                                                                              to outsource the
                                                                                                              operation of their
                                                                                                              licensed InsPro
                                                                                                              Enterprise installation
                                                                                                              to the Company.
                                                                                                              ASP hosting clients
                                                                                                              access InsPro Enterprise
                                                                                                              installed on the
                                                                                                              Company&rsquo;s
                                                                                                              owned servers located
                                                                                                              at the Company&rsquo;s
                                                                                                              office or at a third
                                                                                                              party&rsquo;s site.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2011 To Date
                                                                                                              we earned $335,000
                                                                                                              of license fee revenue,
                                                                                                              which represented
                                                                                                              a license fee recognized
                                                                                                              upon the completion
                                                                                                              of the implementation
                                                                                                              of InsPro Enterprise
                                                                                                              for a client.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2012 To Date
                                                                                                              our maintenance
                                                                                                              revenue increased
                                                                                                              $111,656 or 19%
                                                                                                              as a result of increased
                                                                                                              fees from a client&rsquo;s
                                                                                                              recently implemented
                                                                                                              InsPro Enterprise
                                                                                                              software partially
                                                                                                              offset by decreased
                                                                                                              fees from an existing
                                                                                                              client.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>We earned sub-leasing
                                                                                                              revenue from the
                                                                                                              sub leasing of space
                                                                                                              in our Radnor office
                                                                                                              to third parties,
                                                                                                              which are on a month
                                                                                                              to month basis.
                                                                                                              The Company&rsquo;s
                                                                                                              sublease revenue
                                                                                                              varies month to
                                                                                                              month based on the
                                                                                                              amount of space
                                                                                                              the Company&rsquo;s
                                                                                                              sub-tenants utilizes.
                                                                                                              The Company&rsquo;s
                                                                                                              sub-tenant ceased
                                                                                                              sub-leasing our
                                                                                                              Radnor office during
                                                                                                              the second quarter
                                                                                                              of 2012.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Cost of Revenues</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our cost of revenues for 2012 To Date
was $7,844,648 as compared to $5,035,330 for 2011 To Date for an increase of $2,809,318 or 56% as compared to 2011 To Date. Cost
of revenues consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Nine Months Ended September
    30,</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; text-align: left">Salaries, employee benefits and related taxes</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 15%; font-size: 10pt; text-align: right">4,327,799</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 6%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 15%; font-size: 10pt; text-align: right">3,364,826</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Professional fees</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,011,577</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,191,263</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Rent, utilities, telephone and communications</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">288,331</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">255,750</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0.12in; padding-bottom: 1pt">Other cost of revenues</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">216,941</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">223,491</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">7,844,648</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">5,035,330</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2012 To Date
                                                                                                              our salaries, employee
                                                                                                              benefits and related
                                                                                                              taxes component
                                                                                                              of cost of revenues
                                                                                                              increased $962,973
                                                                                                              or 29% as compared
                                                                                                              to 2011 To Date.
                                                                                                              Salaries, employee
                                                                                                              benefits and related
                                                                                                              taxes increased
                                                                                                              primarily a result
                                                                                                              of increased employee
                                                                                                              staffing related
                                                                                                              to the increase
                                                                                                              in the number of
                                                                                                              InsPro Technologies&rsquo;
                                                                                                              clients and to a
                                                                                                              lesser extent as
                                                                                                              a result of $220,691
                                                                                                              of post employment
                                                                                                              expense pertaining
                                                                                                              to a Separation
                                                                                                              of Employment Agreement
                                                                                                              and General Release
                                                                                                              between the Company
                                                                                                              and InsPro Technologies&rsquo;
                                                                                                              and a former vice
                                                                                                              president of InsPro
                                                                                                              Technologies recorded
                                                                                                              in Third Quarter
                                                                                                              2012.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2012 To Date
                                                                                                              our professional
                                                                                                              fees component of
                                                                                                              cost of revenues
                                                                                                              increased $1,820,314
                                                                                                              or 153% as compared
                                                                                                              to 2011 To Date.
                                                                                                              Professional fees
                                                                                                              increased as a result
                                                                                                              of increased utilization
                                                                                                              of several outside
                                                                                                              consulting firms,
                                                                                                              which are assisting
                                                                                                              us with modifications
                                                                                                              to InsPro Enterprise&rsquo;s
                                                                                                              functionality and
                                                                                                              new clients&rsquo;
                                                                                                              implementation of
                                                                                                              InsPro Enterprise.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2012 To Date
                                                                                                              our rent, utilities,
                                                                                                              telephone and communications
                                                                                                              component of cost
                                                                                                              of revenues increased
                                                                                                              $32,581 or 13% as
                                                                                                              compared to 2011
                                                                                                              To Date. The increase
                                                                                                              was the result of
                                                                                                              higher telephone
                                                                                                              and communications
                                                                                                              costs and higher
                                                                                                              utilities and building
                                                                                                              expenses pertaining
                                                                                                              to InsPro Technologies
                                                                                                              office.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2012 To Date
                                                                                                              our other cost of
                                                                                                              revenues component
                                                                                                              of cost of revenues
                                                                                                              decreased $6,550
                                                                                                              or 3% as compared
                                                                                                              to 2011 To Date.
                                                                                                              The decrease was
                                                                                                              the result of lower
                                                                                                              travel expenses.
                                                                                                              Other cost of revenues
                                                                                                              consisted of computer
                                                                                                              processing incurred
                                                                                                              primarily to provide
                                                                                                              ASP hosting services,
                                                                                                              hardware and software,
                                                                                                              travel and entertainment,
                                                                                                              and office expenses.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Gross Profit</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a result of the aforementioned factors,
we reported a gross profit of $990,502 in 2012 To Date as compared to a gross profit of $600,693 in 2011 To Date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Selling, General and Administrative Expenses</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our selling, general and administrative
expenses for 2012 To Date was $3,689,997 as compared to $3,665,627 for 2011 To Date for an increase of $24,370 or 1% as compared
to 2011 To Date. Selling, marketing and administrative expenses consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Nine Months Ended September
    30,</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; text-align: left">Salaries, employee benefits and related taxes</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 15%; font-size: 10pt; text-align: right">1,735,783</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 6%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 15%; font-size: 10pt; text-align: right">2,053,283</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Advertising and other marketing</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">145,119</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">81,243</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Depreciation and amortization</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">717,072</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">521,309</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Rent, utilities, telephone and communications</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">281,353</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">282,363</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Professional fees</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">385,407</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">307,856</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Other general and administrative</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">425,264</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">419,573</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">3,689,998</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">3,665,627</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In 2012 To Date we incurred salaries,
employee benefits and related taxes of $1,735,783 as compared to $2,053,283 for 2011 To Date, a decrease of $317,500 or 16%. The
decrease is primarily the result of lower corporate staffing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Depreciation and amortization expense
consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-size: 10pt">&nbsp;</TD><TD NOWRAP STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Nine Months Ended
    September 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Amortization of intangibles acquired as a result of the InsPro acquisition</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">260,050</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">260,052</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Depreciation expense</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">457,022</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">261,257</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-indent: 0.12in; padding-bottom: 2.5pt">Total</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">717,072</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">521,309</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 5.4pt; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; background-color: White">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; background-color: White">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>We incurred
                                                                                                               amortization expense
                                                                                                               pertaining to the
                                                                                                               intangible assets
                                                                                                               acquired from InsPro
                                                                                                               Technologies (formerly
                                                                                                               Atiam Technologies,
                                                                                                               L.P.) on October
                                                                                                               1, 2007.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2012 To
                                                                                                               Date we incurred
                                                                                                               depreciation expense
                                                                                                               of $457,021 as
                                                                                                               compared to $261,257
                                                                                                               in 2011 To Date.
                                                                                                               The increase was
                                                                                                               primarily due to
                                                                                                               assets acquired
                                                                                                               pursuant to the
                                                                                                               Micro Focus Agreement
                                                                                                               as described above.
                                                                                                               In addition, 2012
                                                                                                               To Date included
                                                                                                               $41,896 of additional,
                                                                                                               accelerated depreciation
                                                                                                               expense as a result
                                                                                                               of InsPro Technologies&rsquo;
                                                                                                               abandonment of
                                                                                                               certain furniture
                                                                                                               and equipment in
                                                                                                               the second quarter
                                                                                                               of 2012 when InsPro
                                                                                                               Technologies moved
                                                                                                               into newly furnished
                                                                                                               office space in
                                                                                                               a different section
                                                                                                               of Baldwin Towers.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In 2012 To Date our professional fees
increased as a result of higher legal fees associated with our Loan and Security Agreement with Silicon Valley Bank, technology
consulting expenses and human resource management consulting services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In 2012 To Date our other expense decreased
primarily as a result of cost reductions in our corporate areas including lower insurance costs due to the elimination of the
Company&rsquo;s former Florida office.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Loss from operations</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a result of the aforementioned factors,
we reported a loss from operations of $2,699,495 in 2012 To Date as compared to a loss from operations of $3,064,934 in 2011 To
Date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Gain on discontinued operations</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Results from discontinued operations were
as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-size: 10pt">&nbsp;</TD><TD NOWRAP STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Nine Months Ended
    September 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Revenues:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Commission and other revenue from carriers</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">64,001</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">145,278</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Transition policy commission pursuant to the Agreement</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">374,790</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">564,697</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">Sub-lease revenue</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">150,100</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">438,791</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">860,075</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Operating expenses:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Salaries, employee benefits and related taxes</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">11,118</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Rent, utilities, telephone and communications</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">171,510</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Professional fees</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(1,961</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Other general and administrative</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">29,697</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">41,374</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">29,697</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">222,041</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0.12in; padding-bottom: 2.5pt">Gain (loss) from discontinued operations</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">409,094</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">638,034</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 5.4pt; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; background-color: White">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; background-color: White">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; background-color: White">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; background-color: White">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For 2012 To Date we earned revenues from
discontinued operations of $438,791 as compared to $860,075 in the 2011 To Date, a decrease of $421,284 or 49%. Revenues include
the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>In 2012 To
                                                                                                               Date our commission
                                                                                                               and other revenue
                                                                                                               from carriers decreased
                                                                                                               due to the declines
                                                                                                               in our telesales
                                                                                                               call center produced
                                                                                                               agency business.
                                                                                                               We continue to
                                                                                                               receive commissions
                                                                                                               from carriers other
                                                                                                               than certain carriers
                                                                                                               and commissions
                                                                                                               on policies other
                                                                                                               than transferred
                                                                                                               policies, which
                                                                                                               were transferred
                                                                                                               to the acquirer.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>On February
                                                                                                               20, 2009, the Company
                                                                                                               entered into and
                                                                                                               completed the sale
                                                                                                               of the agency business
                                                                                                               to eHealth Insurance
                                                                                                               Services, Inc.,
                                                                                                               an unaffiliated
                                                                                                               third party, pursuant
                                                                                                               to the terms of
                                                                                                               a Client Transition
                                                                                                               Agreement. In 2012
                                                                                                               To Date our transition
                                                                                                               policy commission
                                                                                                               pursuant to the
                                                                                                               agreement decreased
                                                                                                               due to the declines
                                                                                                               in our telesales
                                                                                                               call center produced
                                                                                                               agency business.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Total operating expenses of discontinued
operations for 2012 To Date was $29,697 as compared to $222,041 for 2011 To Date. The primary reason for the decrease is the expiration
of the lease for our former Florida office and the elimination of rent and other associated costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Gain from discontinued operations</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a result of the aforementioned factors,
we reported a gain from discontinued operations of $409,094 or $0.01 gain from discontinued operations per share in 2012 To Date
as compared to a gain from discontinued operations of $638,034 or $0.02 gain from discontinued operations per share in 2011 To
Date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Other income (expenses)</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective September 30, 2012, the full
ratchet anti-dilution provisions pertaining to warrants issued during 2009 and 2010 expired. Consequently, the Company has determined
that effective September 30, 2012, all of the Company&rsquo;s issued and outstanding warrants qualify for a scope exception under
ASC 815-40-15 as they are indexed to the Company&rsquo;s stock. Effective September 30, 2012, the Company recorded the elimination
of the warrant liability by recording a debit to warrant liability in the amount of $6,182,309 and a credit to additional paid
in capital in the amount of $6,182,309. The loss in 2012 To Date and the gain in the 2011 To Date represents the mark to market
adjustments for the change in fair value of warrants, which contain provisions that adjust the exercise price of these warrants
in the event we issue our common stock or other securities convertible into our common stock at price lower than the exercise
price of these warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Interest income is attributable to interest-bearing
cash deposits. The decrease in interest income is the result of a decline in interest rates and a decline in cash balances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Interest expense is attributable to interest
on account payable, capital leases and note payable for premium financing on a portion of the Company&rsquo;s insurance coverages.
The increase in interest expense is the result of an increase in the note payable for premium financing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Net loss</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a result of these factors discussed
above, we reported a net loss of $6,864,779 or $0.17 net loss per share in 2012 To Date as compared to a net loss of $1,496,548
or $0.04 loss per share in 2011 To Date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">LIQUIDITY AND CAPITAL RESOURCES</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At September 30, 2012, we had a cash balance
of $2,091,032 and working capital of $477,612.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Net cash used by operations was $676,379
in 2012 To Date as compared to $1,704,182 cash used in 2011 To Date. The improvement in cash flow from operations was primarily
the result of increased collections of earned and unearned revenue in 2012 as compared to 2011. Impacting our cash flow from operations
was our net loss of $6,864,779 in 2012 To Date as compared to our net loss of $1,496,548 in 2011 To Date and:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Increases in
                                                                                                               accounts receivable
                                                                                                               of $938,141 in
                                                                                                               2012 To Date, which
                                                                                                               are primarily the
                                                                                                               result of increased
                                                                                                               billings in 2012
                                                                                                               To Date to clients
                                                                                                               primarily for professional
                                                                                                               services.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Increases in
                                                                                                               prepaid expenses
                                                                                                               in 2012 To Date
                                                                                                               of $168,494, which
                                                                                                               are primarily the
                                                                                                               result of premium
                                                                                                               obligations for
                                                                                                               various insurance
                                                                                                               policies and expenditures
                                                                                                               for software maintenance
                                                                                                               agreements.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Increases in
                                                                                                               accounts payable
                                                                                                               of $738,392 in
                                                                                                               2012 To Date, which
                                                                                                               are primarily the
                                                                                                               result of increased
                                                                                                               utilization of
                                                                                                               outside IT consulting
                                                                                                               firms and the associated
                                                                                                               increase in the
                                                                                                               amounts owed to
                                                                                                               these vendors.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Increases in
                                                                                                               deferred revenue
                                                                                                               of $1,049,539 in
                                                                                                               2012 To Date, which
                                                                                                               are primarily the
                                                                                                               result of unearned
                                                                                                               license fees and
                                                                                                               to a lesser extent
                                                                                                               annual maintenance
                                                                                                               fees to various
                                                                                                               clients 2012 To
                                                                                                               Date.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Decreases in
                                                                                                               net assets of discontinued
                                                                                                               operations of $16,185
                                                                                                               in 2012 To Date,
                                                                                                               which are primarily
                                                                                                               the result of the
                                                                                                               collection of commission
                                                                                                               amounts owed pertaining
                                                                                                               to our former agency
                                                                                                               business and amounts
                                                                                                               owed from the buyer
                                                                                                               of our Insurint
                                                                                                               business.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition to cash used in operating
activities we incurred the following non cash gain and expenses in 2012 To Date, which were included in our net income (loss),
including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Recorded depreciation
                                                                                                               and amortization
                                                                                                               expense of $717,072
                                                                                                               and $521,309 in
                                                                                                               2012 To Date and
                                                                                                               2011 To Date, respectively.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Recorded stock-based
                                                                                                               compensation and
                                                                                                               consulting expense
                                                                                                               of $72,632 and
                                                                                                               $250,354 in 2012
                                                                                                               To Date and 2011
                                                                                                               To Date, respectively.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Recognized
                                                                                                               a loss on change
                                                                                                               in fair value of
                                                                                                               warrants liabilities
                                                                                                               of $4,508,078 and
                                                                                                               a gain of $929,671
                                                                                                               in 2012 To Date
                                                                                                               and 2011 To Date,
                                                                                                               respectively.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Net cash used by investing activities
in 2012 To Date was $939,022 as compared to $98,235 in 2011 To Date. The increase is primarily the result of the partial payments
for computer software acquired from Micro Focus in connection with existing and new clients utilizing the Company&rsquo;s hosting
service for InsPro Enterprise.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Net cash provided by financing activities
in 2012 To Date was $4,380 as compared to cash provided in 2011 of $1,030,558.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>We entered
                                                                                                               into two notes
                                                                                                               payable to finance
                                                                                                               insurance premiums
                                                                                                               for two of the
                                                                                                               Company&rsquo;s
                                                                                                               various corporate
                                                                                                               insurance coverages
                                                                                                               during 2012.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>InsPro Technologies
                                                                                                               has entered into
                                                                                                               various capital
                                                                                                               lease obligations
                                                                                                               to purchase equipment
                                                                                                               used for operations.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>During the
                                                                                                               first quarter of
                                                                                                               2011 the letters
                                                                                                               of credit pertaining
                                                                                                               to the former leases
                                                                                                               for our Florida
                                                                                                               and New York offices,
                                                                                                               which were collateralized
                                                                                                               with assets in
                                                                                                               the form of a money
                                                                                                               market account
                                                                                                               and certificate
                                                                                                               of deposit and
                                                                                                               classified as restricted
                                                                                                               cash as of December
                                                                                                               31, 2010, were
                                                                                                               terminated as a
                                                                                                               result of the expiration
                                                                                                               of these leases.
                                                                                                               As a result of
                                                                                                               the termination
                                                                                                               of these letters
                                                                                                               of credit the restrictions
                                                                                                               on the money market
                                                                                                               account and certificate
                                                                                                               of deposit were
                                                                                                               lifted, and $1,152,573
                                                                                                               was reclassified
                                                                                                               from restricted
                                                                                                               cash to cash during
                                                                                                               the first quarter
                                                                                                               of 2011.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On October 3, 2012, the Company together
with InsPro Technologies (the &ldquo;Borrowers&rdquo;) entered into a Loan and Security Agreement (the &ldquo;Loan Agreement&rdquo;)
with Silicon Valley Bank (&ldquo;SVB&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Loan Agreement established a revolving
credit facility for the Borrowers in the principal amount of up to $2,000,000 (the &ldquo;Revolving Facility&rdquo;). Availability
under the Revolving Facility is tied to a borrowing base formula that is based on 80% of the Borrowers&rsquo; eligible accounts
receivable, plus 20% of the aggregate unrestricted cash balanced held at SVB (the &ldquo;Borrowing Base&rdquo;). Advances under
the Revolving Facility may be repaid and reborrowed in accordance with the Loan Agreement. No advances were made at closing however
an advance of $525,000 was made on October 15, 2012. Pursuant to the Loan Agreement, the Borrowers agreed to pay to SVB the outstanding
principal amount of all advances (the &ldquo;Advances&rdquo;), the unpaid interest thereon, and all other obligations incurred
with respect to the Loan Agreement on October 3, 2014. Interest will accrue on the unpaid principal balance of the Advances at
a floating per annum rate equal to 1% above the prime rate. During an event of default the rate of interest will increase 5% above
the otherwise applicable rate, until such event of default is cured or waived. All accrued and unpaid interest is payable monthly
on the first day of each month.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Subject to certain exceptions, the Loan
Agreement contains covenants prohibiting the Borrowers from, among other things: (a) conveying, selling, leasing, transferring
or otherwise disposing of their properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the
business currently engaged in or reasonably related thereto; (d) entering into any merger or consolidation, or acquiring all or
substantially all of the capital stock or property of another entity; (e) becoming liable for any indebtedness; (f) allowing any
lien or encumbrance on any of their property; (g) paying any dividends; and (h) making payment on subordinated debt. Further,
the Borrowers must maintain a minimum &ldquo;adjusted quick ratio,&rdquo; tested as of the last day of each month, of at least
1.75:1.00 commencing August 31, 2012. The adjusted quick ratio (the &ldquo;AQR&rdquo;) is the ratio of (x) the Borrowers&rsquo;
consolidated, unrestricted cash maintained with SVB (and, for 90 days after the closing date, maintained with PNC Bank) plus net
unbilled accounts receivable to (y) the Borrowers&rsquo; liabilities to SVB plus, without duplication, the aggregate amount of
the Borrowers&rsquo; liabilities that mature within 1 year (excluding subordinated debt), minus the current portion of deferred
revenue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Loan is secured by a first priority
perfected security interest in substantially all of the assets of the Borrowers, excluding the intellectual property of the Borrowers.
The Loan Agreement contains a negative covenant prohibiting the Borrowers from granting a security interest in their intellectual
property to any party.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Under the terms of the Loan Agreement,
the Borrowing Base under the Revolving Facility was $1,563,414 and the AQR was 1.64 as of September 30, 2012, which is below the
required 1.75:1.00 AQR. The Company has notified SVB that the AQR as of September 30, 2012, is lower than the required amount,
which represented a default on the Loan Agreement by the Company. On November 13, 2012 SVB agreed to waive the default and the
Company and SVB agreed to amend the Loan Agreement to lower the Company&rsquo;s requirement to maintain an AQR of 1.75 to 1.0
to 1.50 to 1.0 commencing with the month ending November 30, 2012 and as of the last day of each month thereafter.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Off-Balance Sheet Arrangements</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth the name, age, and position of each of our executive officers and directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Directors serve until
the next annual meeting of stockholders, until their successors are elected or appointed or qualified, or until their prior resignation
or removal. Our executive officers are appointed by, and serve at the discretion of, our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 27%; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Name</B></P></TD>
    <TD STYLE="width: 10%; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; border-bottom: Black 0.5pt solid"><B>Age</B></P></TD>
    <TD STYLE="width: 63%; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Position</B></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Donald R. Caldwell</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">66</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Chairman</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Brian Adamsky</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">51</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">John Harrison</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">69</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Michael Azeez</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">55</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Robert Oakes</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">54</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Sanford Rich</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">54</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">L.J. Rowell</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">80</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Paul Soltoff</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">58</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Anthony R. Verdi</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">63</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Chief Executive Officer, Chief Financial Officer and Chief Operating Officer
    and Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Edmond J. Walters</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">51</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Brian K. Adamsky</I></B>,
51.<B><I> </I></B>Mr. Adamsky has worked at Cross Atlantic Capital Partners, Inc. since its inception in 1999, and presently serves
as its Secretary/Treasurer and Chief Financial Officer. During his years at Cross Atlantic, he has served as a director at numerous
of its portfolio companies including Profectus BioSciences, Inc. and Rubicon Technology, Inc. From 1996 to 1999, Mr. Adamsky was
Chief Financial Officer at Megasystems, Inc., a portfolio company of Safeguard Scientifics, Inc. Prior to Megasystems, Mr. Adamsky
worked in a variety of financial and operational roles at companies in the Philadelphia region. Mr. Adamsky worked in public accounting
at Touche Ross &amp; Company (now Deloitte &amp; Touche) and is a Certified Public Accountant in the Commonwealth of Pennsylvania.
Mr. Adamsky&rsquo;s experience serving as a director and officer of numerous companies qualifies him to be a member of our board
of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Michael Azeez</I></B>,
age 55, has served as one of our directors since December 2011. Mr. Azeez is a managing member of Azeez Investors, LLC. Mr. Azeez
co-founded Unitel in 1988 and served as its President from 1988 until 2002. Mr. Azeez served in various executive positions at
American Cellular Network Corporation from 1982 until 1988 and his positions included Vice President, General Manager of various
divisions and assistant to the President. Mr. Azeez is a member of the board of directors of Acrometis Strategic Software Services,
which provides software solutions to insurance companies for workers compensation claims management. Mr. Azeez is a member of
the board of directors of the Friends of Yemin Orde. Mr. Azeez is the Chairman and founder of the Sam Azeez Museum of Woodbine
Heritage. Mr. Azeez&rsquo;s significant executive and business development experience in the telecommunications industry and his
civic service for various non-profit organizations qualifies him to be a member of our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Donald R. Caldwell</I></B>,
66, has served as one of our directors and as one of the Co-Chairman of our board of directors from April 2008 through November
24, 2009 and as our Chairman since November 24, 2009. Mr. Caldwell founded Cross Atlantic Capital Partners, Inc. in 1999, and
presently serves as its Chairman and Chief Executive Officer. He has served as a Director at Rubicon Technology, Inc. since 2001
where he chairs the Compensation Committee; and at Diamond Management &amp; Technology Consultants, Inc. (NASDAQ) from 1994 until
its sale to PriceWaterhouse in 2010, and where he served as a member of their Compensation Committee, Audit Committee and as the
lead director since 2006. Mr. Caldwell is a Director and a member of the Compensation and Audit Committees and chairman of the
Executive Committee of Quaker Chemical Corporation (NYSE), and a member of the Compensation Committee and the board of Voxware,
Inc. (NASDAQ), a supplier of voice driven solutions. Mr. Caldwell is a director, chairman of the audit committee and member of
the compensation committee of Lighting Gaming, Inc. since 2005. Mr. Caldwell was a director of Kanbay International, Inc. from
1999 through 2007 when it was purchased by CapGemini. From 1996 to 1999, Mr. Caldwell was President and Chief Operating Officer
and a Director of Safeguard Scientifics, Inc. Mr. Caldwell is a Certified Public Accountant in the State of New York. Mr. Caldwell&rsquo;s
experience serving as a director and officer of numerous public companies qualifies him to be a member of our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>John Harrison</I></B>,
69, has served as one of our directors since November 2005. He is a founding Partner and Executive Director of The Keystone Equities
Group, Inc., a full service investment banking group and a registered NASD broker-dealer founded in 2003. Mr. Harrison also is
a Managing Director of Covenant Partners, a hedge fund that invests in direct marketing services companies. In 1999, Mr. Harrison
became a founding Partner of Emerging Growth Equities, Ltd., a full service investment banking and brokerage firm focused on raising
capital for emerging technology companies addressing high-growth industry sectors. From 1985 to 2000, Mr. Harrison served as President
of DiMark, a direct marketing agency that was acquired by Harte-Hanks in 1996. He also has held senior management positions with
CUNA Mutual, RLI Insurance and CNA Insurance where he directed their direct marketing practice. Mr. Harrison was Chairman of Professional
Insurance Marketing Association (PIMA) and Chairman of the DMA's Financial Services Council. Mr. Harrison&rsquo;s extensive experience
in the financial and insurance sectors qualifies him to be a member of our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Robert J. Oakes</I></B>,
54, has served as one of our directors since August 2008. He has served as the President and CEO of our InsPro Technologies, LLC
subsidiary since our acquisition of the subsidiary on October 1, 2007. From 1986 until 2007 Mr. Oakes was President and Chief
Executive Officer of the general partner of Atiam Technologies L.P. (now known as InsPro Technologies, LLC), a software development
and servicing company that developed, expanded and serviced products to serve the insurance and financial services markets. Mr.
Oakes founded InsPro Technologies under the name &ldquo;Atiam&rdquo; in 1986 and led the company&rsquo;s effort to design and
develop its flagship product, InsPro. InsPro is a state-of-the-art Insurance, Marketing, Administration and Claim System that
provides end-to-end insurance processing, technology and support, for a broad range of life, health and disability products. Mr.
Oakes&rsquo; experience in the development of our flagship product and the management of InsPro Technologies, LLC qualifies him
to be a member of our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Sanford Rich</I></B>,
54, has served as one of our directors since April 2006. Mr. Rich has served as a Director and Chief Executive Officer at In the
Car, LLC since October 2011. He is a Director and the Audit Committee Chairman at Aspen Group Inc., an online University. Mr.
Rich also has served as a FINRA Registered Managing Director with Whitemarsh Capital Advisors LLC, a broker-dealer, since February
2009. Mr. Rich served as a director, audit committee chairman and SEC qualified audit committee financial expert of Interclick,
Inc. from 2007 to 2010. From 1995 to May 2008 Mr. Rich was Director, Senior Vice President and Portfolio Manager at GEM Capital
Management Inc. From 1993 to 1995, Mr. Rich was a Managing Director of High Yield Finance, Capital Markets &amp; North American
Loan Syndicate, Sales and Trading at Citicorp Securities. From 1985 to 1993, he served as Managing Director of Debt Capital Markets
at Merrill Lynch. From 1978 to 1985, Mr. Rich held various Analyst positions in numerous companies, including Cypress Capital
Management, Inc. (Vice President and Analyst from 1983 to 1985), FIAMCO (Distressed/High Yield Bond Analyst from 1981 to 1983),
Progressive Corporation (Financial Analyst from 1980 to 1981) and Prescott, Ball and Turben (Distressed/High Yield Bond Analyst
from 1978 to 1980). Mr. Rich&rsquo;s 30+ years of experience in the financial sector qualifies him to be a member of our board
of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>L.J. Rowell</I></B>,
80, has served as one of our directors since April 2006. He is a past President (1984-1996), Chief Executive Officer (1991-1996)
and Chairman of the Board (1993-1996) of Provident Mutual Life Insurance Company, where he also held various other executive and
committee positions from 1980 until his retirement in 1996. Mr. Rowell served on the board of directors of the PMA Group from
1992 until 2009. Mr. Rowell served on the board of directors of the Southeast Pennsylvania Chapter of the American Red Cross,
the American College, The Foundation at Paoli and The Milton S. Hershey Medical Center. Mr. Rowell also has served on the Board
of Trustees of The Pennsylvania State University as a business and industry trustee since 1992. In 1991, he served as the Chairman
of the Major Business Division for the United Way of Southeastern Pennsylvania. Mr. Rowell also has served as chairman of The
American Red Cross Ad Blood Campaign and has previously served on its Major Contributions Donor Campaign. Mr. Rowell&rsquo;s extensive
experience in the insurance industry and his civic service for various health care organizations qualifies him to be a member
of our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Paul Soltoff</I></B>,
58, has served as one of our directors since November 2005. He also has served as Chairman and Chief Executive Officer of Acquirgy,
Inc. since 2009. He served as Chairman and Chief Executive Officer of SendTec, Inc. since its inception in February 2000 through
2009. From 1997 until February 2000, Mr. Soltoff served as Chief Executive Officer of Soltoff Direct Corporation, a specialized
direct marketing consulting company. From September 2004 until October 2005, Mr. Soltoff served as a director of theglobe.com.
Mr. Soltoff&rsquo;s experience as an officer and director in the Internet marketing sector qualifies him to be a member of our
board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Anthony R. Verdi</I></B>,
63, has served as one of our directors since June 2008, as our Chief Financial Officer and Assistant Secretary since November
2005, as our Chief Operating Officer since April 2008, Acting Chief Executive Officer from June 20, 2008 through May 18, 2011,
and Chief Executive Officer since May 18, 2011. From 2001 until November 2005, Mr. Verdi provided consulting services to life,
health and property and casualty insurance company agency and venture capital clients. Mr. Verdi served as Chief Operating Officer
of Provident American Corporation and Chief Financial Officer of HealthAxis, Inc. From January 1990 until December 1998 Mr. Verdi
served as Chief Financial Officer of Provident American Corporation. From July 1986 until January 1990, he was the Vice President
and Controller of InterCounty Hospitalization and Health Plans, a nonprofit group medical insurer. From April 1971 until July
1986, he served in various finance and accounting capacities for the Academy Insurance Group, ultimately serving as the Assistant
Controller. Mr. Verdi&rsquo;s extensive experience in the insurance industry and his financial and accounting background qualifies
him to be a member of our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Edmond J. Walters</I></B>,
51, has served as one of our directors since April 2008. Mr. Walters is Founder and Chief Executive Officer of eMoney Advisor,
a wealth planning and management solutions provider for financial advisors that Mr. Walters founded in 2000 and is now a wholly-owned
subsidiary of Commerce Bancorp. Prior to forming eMoney Advisor in 2000, Mr. Walters spent more than 20 years in the financial
services industry, advising high net worth clients. From 1983 to 1992 he was associated with Kistler, Tiffany &amp; Company in
Wayne, PA. In 1992, Walters helped found the Wharton Business Group, a financial advising firm, in Malvern, PA. Mr. Walters&rsquo;
20+ years of experience in the financial sector qualify him to be a member of our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Board Independence</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Board has determined
that Messrs. Azeez, Caldwell, Harrison, Rich, Rowell, Soltoff and Walters are &ldquo;independent&rdquo; directors as defined by
Rule 4200(a)(15) of the Nasdaq listing standards and as defined by Rule 10A-3(b)(1)(ii) promulgated by the Commission.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">EXECUTIVE COMPENSATION</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Summary Compensation Table</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
summarizes the compensation paid to, awarded to or earned during the fiscal years ended December 31, 2011 and 2010 by our Principal
Executive Officer and each of our two other most highly compensated executive officers whose total salary and bonus exceeded $100,000
for services rendered to us in all capacities during 2011. The executive officers listed in the table below are referred to in
this report as our &ldquo;named executive officers&rdquo;. There were no non-equity incentive plan compensation or non-qualified
deferred compensation earnings for any of the named executive officers for the fiscal years ended December 31, 2011 and December
31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold"><FONT STYLE="font-size: 10pt"><B>Name and Principal Position</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Fiscal
    Year</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Salary
    ($)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Bonus
    ($)</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>(6)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Stock</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Awards</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>($)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Option</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Awards ($)</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>(4)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>All
    Other</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Compensation</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>($) (5)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Total
    ($)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 14%"><FONT STYLE="font-size: 10pt">Anthony R. Verdi (1)</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 7%; text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 10pt">239,583</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 10pt">180,000</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: right"><FONT STYLE="font-size: 10pt">16,490</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 10pt">436,073</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 10pt">Chief Executive Officer,</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">237,981</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">16,531</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">254,512</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 10pt">Chief Financial Officer &amp; Chief</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 10pt">Operating Officer</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 10pt">Robert J. Oakes (2)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">300,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">22,132</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">322,132</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="background-color: #CCFFCC">
    <TD STYLE="vertical-align: bottom"><FONT STYLE="font-size: 10pt">President &amp; Chief Executive Officer of InsPro Technologies,
    LLC</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right"><FONT STYLE="font-size: 10pt">274,908</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right"><FONT STYLE="font-size: 10pt">50,000</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right"><FONT STYLE="font-size: 10pt">499,491</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right"><FONT STYLE="font-size: 10pt">24,157</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: right"><FONT STYLE="font-size: 10pt">848,556</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 10pt">James Rourke (3)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">180,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">136,019</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">16,156</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">332,175</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 10pt">Senior Vice President</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">164,900</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">15,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">24,748</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">14,279</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">218,927</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD COLSPAN="29">&nbsp;</TD></TR>
</TABLE>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>Mr. Verdi was appointed as our Chief Financial Officer on November
                                                            10, 2005, Chief Operating Officer on April 1, 2008, acting Chief Executive
                                                            Officer on June 20, 2008 and Chief Executive Officer on May 18, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(2)</TD><TD>Mr. Oakes was appointed as President and Chief Executive Officer
                                                            of our subsidiary InsPro Technologies, LLC on October 1, 2007 concurrently
                                                            with the closing of our acquisition of InsPro.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(3)</TD><TD>Mr. Rourke was appointed our Senior Vice President on February
                                                            1, 2010. Mr. Rourke resigned effective December 14, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(4)</TD><TD STYLE="text-align: justify">Represents the aggregate grant date
                                                            fair value of the stock option as of the date of grant using the Black-Scholes
                                                            option-pricing model. Fair value is estimated based on an expected
                                                            life of five years, an assumed dividend yield of 0% and the assumptions
                                                            below.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold"><FONT STYLE="font-size: 10pt"><B>Name</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Fiscal
    Year</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Fair
    Value</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>at Date of</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Grant ($)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Number
    of</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Options</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Granted (#)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Option</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Exercise</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Price ($)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Closing</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Stock Price </B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>On the Date</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>of Grant ($)</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Date
    of</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Grant</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Expected</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Volatility</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Risk
    Free</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Interest</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Rate</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Expected</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Life in</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Years</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt"><B>Assumed</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Dividend</B></FONT><BR>
    <FONT STYLE="font-size: 10pt"><B>Yield</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: -1mm"><FONT STYLE="font-size: 10pt">Anthony R. Verdi</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 4%; text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 10pt">180,000</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 10pt">150,000</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 10pt">4.00</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 10pt">4.00</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 10pt">9/14/2011</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 10pt">566</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 10pt">0.03</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 10pt">5</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 10pt">Robert J. Oakes</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">166,497</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">1,500,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.111</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.111</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">8/18/2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">384</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.19</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">332,994</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">150,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">4.00</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">4.00</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">8/18/2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">384</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.19</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 10pt">James Rourke</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">14,998</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">250,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.060</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.060</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3/25/2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">345</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.14</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">9,750</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">150,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.065</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.065</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">7/9/2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">376</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.20</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD COLSPAN="41">&nbsp;</TD></TR>
</TABLE>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(5)</TD><TD STYLE="text-align: justify">All other compensation paid to our
                                                            named executive officers in the fiscal year ended December 31, 2011
                                                            consisted of the following:</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold">Name</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Payments
    for<BR> Auto and<BR> Equipment ($)<BR> (a)</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Company
    Paid<BR> Health, Life<BR> and Disability<BR> Insurance ($)<BR> (b)</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Company<BR>
    Matching of<BR> Employee<BR> 401(k)<BR> Contributions<BR> (c)</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Total ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 36%">Anthony R. Verdi</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">13,200</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">982</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: right">2,308</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">16,490</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Robert J. Oakes</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">18,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">2,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">22,132</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>James Rourke</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">14,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">16,156</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="17">&nbsp;</TD></TR>
</TABLE>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(a)</TD><TD STYLE="text-align: justify">Payments for auto and equipment
                                                                represent monthly allowances for auto, cell phones and other equipment.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(b)</TD><TD STYLE="text-align: justify">Company-paid health, life and
                                                                disability insurance represents the cost of company-paid insurance
                                                                premiums covering the named executive officers and, in the case
                                                                of health insurance premiums, their dependents. We pay 100% of
                                                                these insurance premiums for the named executive officers. Health
                                                                insurance premiums vary based on several factors, including the
                                                                age of the named executive officer and the number of their covered
                                                                dependents.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(c)</TD><TD STYLE="text-align: justify">Company matching of employee 401(k)
                                                                contributions represents 25% of the employee&rsquo;s contribution
                                                                up to 4% of the employee&rsquo;s compensation, which were fully
                                                                vested for the above named executive officers.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(6)</TD><TD STYLE="text-align: justify">Mr. Oakes received a bonus in 2010
                                                            based on a bonus plan, which was based on InsPro Technologies LLC&rsquo;s
                                                            2009 revenue and profit measures and Mr. Oakes individual personal
                                                            performance as evaluated by the Compensation Committee. Mr. Rourke
                                                            received a one time sign-on bonus in 2010 as part of the Company&rsquo;s
                                                            employment offer to him and in 2011 Mr. Rourke received variable compensation
                                                            based on revenue from new clients.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Outstanding Equity Awards at Fiscal Year-End</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth information for the outstanding equity awards held by our named executive officers for the year ended December 31,
2011. The information below pertains to stock options, which were granted under the 2010 Equity Compensation Plan (which includes
prior grants under our 2005 Incentive Stock Plan, 2006 Omnibus Equity Compensation Plan and 2008 Equity Compensation Plan), restricted
stock grants, which were granted in accordance with the terms of our 2006 Omnibus Equity Compensation Plan, a warrant to purchase
150,000 shares of the Company&rsquo;s Series A Convertible Preferred Stock, which was issued to Mr. Oakes on August 18, 2010,
and a warrant to purchase 150,000 shares of the Company&rsquo;s Series A Convertible Preferred Stock, which was issued to Mr.
Verdi on September 14, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="16" STYLE="font-weight: bold; text-align: center">Option Awards</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold">Name</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Number
    of<BR> Securities<BR> Underlying<BR> Unexercised<BR> Options <BR> (#)<BR> Exercisable</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Number
    of<BR> Securities<BR> Underlying<BR> Unexercised<BR> Options<BR> (#)<BR> Unexercisable</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Equity<BR>
    Incentive<BR> Plan Awards:<BR> Number of<BR> Securities<BR> Underlying<BR> Unexercised<BR> Unearned<BR> Options<BR> (#)</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Option<BR>
    Exercise<BR> Price<BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Option<BR> Expiration<BR> Date</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: right">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: right">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: right">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: right">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 30%">Anthony R. Verdi</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: right">150,000</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right">-</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: right">-</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 10%; text-align: right">4.00</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">9/14/2016</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">650,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">2/4/2014</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">11/09/2015</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Robert J. Oakes</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">375,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">8/18/2015</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">4.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">8/18/2015</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">2/4/2014</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>James Rourke</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">90,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">7/9/2015</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3/25/2015</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="19" STYLE="text-align: right">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Employment, Severance and Other Agreements</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Anthony R. Verdi</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to an amended and restated employment
agreement Mr. Verdi serves as our Chief Executive Officer, Chief Financial Officer and Chief Operating Officer. Pursuant to his
amended and restated employment agreement, his annual base salary was $225,000 per year through April, 1, 2006, was then increased
to $250,000 through March 31, 2009. Mr. Verdi&rsquo;s employment agreement, if not terminated, will automatically renew for one
year periods. He is entitled to receive such bonus compensation as a majority of our board of directors may determine from time
to time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the March 31, 2008
private placement, Mr. Verdi&rsquo;s employment agreement was amended effective March 31, 2008 to revise Mr. Verdi&rsquo;s annual
base salary to $225,000 and to amend the term of his employment agreement to a one year term commencing March 31, 2008.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Mr. Verdi&rsquo;s annual base salary was
increased to $250,000 effective June 1, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the event of Mr. Verdi&rsquo;s termination
without cause or for good reason, he or his estate would receive his then current base annual salary, plus unpaid accrued employee
benefits, which is primarily accrued vacation, plus the continuation of his employee benefits for a period of 18 months, less
all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued
employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Robert J. Oakes</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to an amended and restated employment
agreement with InsPro Technologies, LLC, Mr. Oakes serves as InsPro Technologies, LLC&rsquo;s President and Chief Executive Officer.
Pursuant to his employment agreement, his annual base salary was $250,000 per year through September 30, 2011. On April 7, 2011,
Mr. Oakes received an increase in his base compensation pursuant to his employment agreement to $300,000 retroactive to July 1,
2010, upon InsPro Technologies, LLC&rsquo;s achievement of one calendar quarter of positive operating cash flow, which occurred
during the calendar quarter ended March 31, 2011. Mr. Oakes is entitled to bonus compensation equal to 100% of InsPro Technologies,
LLC&rsquo;s net income up to a maximum of $100,000 in 2010 and $100,000 in 2011. Mr. Oakes is entitled to such fringe benefits
as are available to other executives of InsPro Technologies Corporation. Mr. Oakes employment agreement was automatically extended
for an additional one year term on March 25, 2011 and will be annually automatically extended thereafter unless either party provides
written notification to the other party of non-renewal no later than 60 days prior to the termination date of the agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the event of Mr. Oakes&rsquo;s termination
without cause or for good reason, he or his estate would receive his then current base annual salary, plus unpaid accrued employee
benefits, which is primarily accrued vacation, plus the continuation of his employee benefits for a period of 12 months, less
all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued
employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to Mr. Oakes employment agreement,
he is subject to a non competition and non-solicitation provision during the term of his employment agreement and for a period
of one year following his termination.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">James Rourke</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Mr. Rourke served as InsPro Technologies,
LLC&rsquo;s Senior Vice President of Sales and Marketing from February 1, 2010 through December 14, 2012. Mr. Rourke was entitled
to variable incentive compensation based on a percentage of new sales and bonus compensation as defined in the InsPro Technologies
Management Incentive Compensation Plan. The InsPro Technologies Management Incentive Compensation Plan defines a maximum compensation
payment, or the Bonus Pool, payable to certain executives including Mr. Rourke but excluding Messrs. Oakes and Verdi, based on
the net income of InsPro Technologies, LLC, adjusted up or down based on the revenue of InsPro Technologies, LLC. The Bonus Pool
amount (if any) is then divided among the certain executives, which included Mr. Rourke. Mr. Rourke was entitled to such fringe
benefits as are available to other executives of InsPro Technologies Corporation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Compensation of Directors</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth information concerning the compensation of all individuals who served on our board of directors during the fiscal year
ended December 31, 2011. There were no non-equity incentive plan compensation or nonqualified deferred compensation earnings to
any of our directors for the year ended December 31, 2011. Directors who are employees receive no additional or special compensation
for serving as directors. All compensation for Messrs. Oakes and Verdi are included in the Summary Compensation Table. Messrs.
Caldwell and Tecce have assigned all of their board compensation to The Co-Investment Fund II, L.P., or the Fund. Messrs. Caldwell
and Tecce are stockholders, directors and officers of Co-Invest II Capital Partners, Inc., which is the general partner of Co-Invest
Management II, L.P., which is the general partner of the Fund.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold">Name</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Fees
    Earned<BR> or<BR> Paid in Cash<BR> ($) (1)</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Stock<BR>
    Awards<BR> ($)</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">Option<BR>
    Awards<BR> ($)</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Total<BR> ($)</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 37%">Michael Azeez</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 15%; text-align: right">1,000</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">-</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">-</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">1,000</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Donald Caldwell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6,500</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>John Harrison</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5,000</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Warren V. Musser (2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,000</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Sanford Rich</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6,500</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>L.J. Rowell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6,500</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Paul Soltoff</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3,500</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Frederick Tecce</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">4,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">4,500</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Edmond Walters</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3,000</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="17">&nbsp;</TD></TR>
</TABLE>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>Represents board and committee meeting fees paid to our directors
                                                            under our Non-Employee Director Compensation Plan.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">Mr. Musser is a former member of the
                                                            board who chose not to be a nominee for director at the company annual
                                                            meeting of stockholders, which was held on August 4, 2011.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"></P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth information concerning the aggregate number of options available, which are options issued, outstanding and exercisable,
for non-employee directors as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">Aggregate Number of<BR> Options Available as of<BR> December 31, 2011</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Michael Azeez</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Donald Caldwell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 58%">John Harrison</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 38%; text-align: right">250,000</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Sanford Rich</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">200,000</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>L.J. Rowell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">200,000</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Paul Soltoff</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">150,000</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Frederick C. Tecce</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Edmond Walters</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD></TR>
</TABLE>
<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Director Compensation Plan</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Directors who are
employees receive no additional or special compensation for serving as directors. Non employee directors receive the following
compensation under the terms of our Non Employee Director Compensation Plan, which was amended on December 13, 2011, to remove
all equity compensation and annual cash retainer components from the plan and to increase the per board meeting cash fee effective
January 2, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The compensation of
the Company&rsquo;s non-employee directors is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>$1,000 meeting
                                                                                                              fee through December
                                                                                                              31, 2011 and $1,500
                                                                                                              meeting fee thereafter
                                                                                                              for each director
                                                                                                              for each meeting
                                                                                                              of the board attended
                                                                                                              in person or via
                                                                                                              conference telephone.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>$500 meeting
                                                                                                              fee for each committee
                                                                                                              member for each
                                                                                                              meeting of a committee
                                                                                                              of the board, attended
                                                                                                              in person or via
                                                                                                              conference telephone.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company reimburses
non-employee directors for reasonable out-of-pocket expenses incurred in connection with their attendance at board and committee
meetings, in accordance with the Company&rsquo;s expense reimbursement policies in effect from time to time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We also purchase directors&rsquo;
and officers&rsquo; liability insurance for the benefit of our directors and officers as a group. No fees are payable to directors
for attendance at specially called meetings of the board.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The following table shows information known
by us with respect to the beneficial ownership of our common stock, Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock as of December 31, 2012, for each of the following persons:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>each of our
                                                                                                               directors;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our named executive
                                                                                                               officers;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>all of our
                                                                                                               directors, director
                                                                                                               nominees and executive
                                                                                                               officers as a group;
                                                                                                               and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>each person
                                                                                                               or group of affiliated
                                                                                                               persons or entities
                                                                                                               known by us to
                                                                                                               beneficially own
                                                                                                               5% or more of our
                                                                                                               common stock, Series
                                                                                                               A Convertible Preferred
                                                                                                               Stock or Series
                                                                                                               B Convertible Preferred
                                                                                                               Stock.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&#9;The number of shares beneficially owned,
beneficial ownership and percentage ownership are determined in accordance with the rules of the Securities and Exchange Commission.
Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power
or investment power and includes any shares that an individual or entity has the right to acquire beneficial ownership of within
60 days of December 31, 2012 through the exercise of any warrant, stock option or other right. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, shares underlying options and warrants that are exercisable
within 60 days of December 31, 2012 are considered to be outstanding. To our knowledge, except as indicated in the footnotes to
the following table and subject to community property laws where applicable, the persons named in this table have sole voting
and investment power with respect to all shares shown as beneficially owned by them. The following table is based on 41,543,655
shares of Common<B> </B>Stock, 1,276,750 shares of Series A Convertible Preferred Stock and 3,297,378 shares of Series B Convertible
Preferred Stock outstanding as of December 31, 2012. Unless otherwise indicated, the address of all individuals and entities listed
below is InsPro Technologies Corporation, 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="vertical-align: bottom; width: 45%; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Name of Beneficial
        Owner</B></P></TD>
    <TD STYLE="vertical-align: bottom; width: 19%; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; border-bottom: Black 0.5pt solid"><B>Number
        of Shares </B><BR>
        <B>Beneficially Owned</B></P></TD>
    <TD STYLE="vertical-align: bottom; width: 21%; padding-right: 0; padding-left: 0; text-align: center"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; border-bottom: Black 0.5pt solid"><B>&nbsp;Title
        of Class</B></P></TD>
    <TD STYLE="vertical-align: bottom; width: 15%; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; border-bottom: Black 0.5pt solid"><B>Percent
        of Shares Beneficially</B></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0"><P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Directors and Executive Officers:</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P></TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Michael Azeez</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">8,499,990 (1)(1a)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">20.5%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">283,333(1)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series B Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">8.6%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Brian Adamsky</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">125,894,915&nbsp; (2)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">81.3%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,250,000 (3)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series A Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">97.9%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,130,711 (3)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series B Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">34.3%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Donald R. Caldwell</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">126,008,925&nbsp; (2)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">81.4%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,250,000 (3)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series A Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">97.9%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,130,711 (3)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series B Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">34.3%</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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    <!-- Field: /Page -->
<P STYLE="margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 0; width: 45%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Name of Beneficial
        Owner</B></P></TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 0; width: 19%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; border-bottom: Black 0.5pt solid"><B>Number
        of Shares </B><BR>
        <B>Beneficially Owned</B></P></TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0; padding-left: 0; text-align: center; width: 21%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; border-bottom: Black 0.5pt solid"><B>&nbsp;Title
        of Class</B></P></TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 0; width: 15%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; border-bottom: Black 0.5pt solid"><B>Percent
        of Shares Beneficially</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; width: 45%">Robert J. Oakes</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right; width: 19%">5,207,232 (4)&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center; width: 21%">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center; width: 15%">12.0%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">151,250 (5)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series A Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">10.7%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">John Harrison</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">453,333&nbsp; (6)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">1.1%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,250&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series A Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0">James Rourke</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0; text-align: right">370,000&nbsp; (7)</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0">L.J. Rowell</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0; text-align: right">415,600&nbsp; (8)</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; text-align: center">1.0%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Paul Soltoff</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">388,333&nbsp; (9)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,250&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series A Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0">Sanford Rich</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0; text-align: right">348,333&nbsp; (10)</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,250&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series A Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Anthony R. Verdi</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">4,118,333&nbsp; (11)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">9.7%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">151,250(5)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series A Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">10.7%</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0">Edmond Walters</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0; text-align: right">171,633&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; font-weight: bold; text-align: center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">All directors and executive officers as a group</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(11 persons)&#9;</P></TD>
    <TD STYLE="vertical-align: bottom; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: right">145,981,713 (1)(1a)(2)(4)(5)
        (6) (7)(8)(9)</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: right">(10)(11)(12)</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.05in 0pt 0; text-align: right">&nbsp;</P></TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.4pt; padding-left: 0; text-align: center">81.3%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,256,250 (3)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series A Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">98.6%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,414,044 (3)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series B Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">42.9%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; font-weight: bold">Holders of More than Five Percent of Our Common Stock,
    Series A Convertible Preferred Stock and Series B Convertible Preferred Stock:</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">The Co-Investment Fund II, L. P</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">125,894,915 (12)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">81.3%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,250,000&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series A Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">97.9%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,130,711&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series B Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">34.3%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Independence Blue Cross</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">50,000,010 (13)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">54.6%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">1,666,667&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series B Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">50.5%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Azeez Investors, LLC</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">8,499,990 (1a)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">20.5%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">283,333&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series B Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">8.6%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Scarpa Family Trust, 2005</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">6,500,010 (14)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">13.5%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">216,667&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Series B Preferred Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">6.6%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Alvin H. Clemens</TD>
    <TD STYLE="padding-right: 0.05in; padding-left: 0; text-align: right">3,922,457 (15)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">Common Stock</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">9.2%</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">______________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">* Less than 1%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>Represents securities owned by Azeez Investors, LLC. Mr. Azeez
                                                            is a managing member of Azeez Investors, LLC. Mr. Azeez disclaims
                                                            beneficial ownership of these securities, except to the extent of
                                                            his pecuniary interest therein.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1a)</TD><TD>Includes 2,833,330 shares underlying warrants, which are exercisable
                                                             within 60&nbsp;days of December 31, 2012. Includes 5,666,660 shares
                                                             underlying 283,333 shares of Series B Convertible Preferred Stock,
                                                             which are convertible, at the sole option of the holder, into 20
                                                             shares of our common stock per share of Series B Convertible Preferred
                                                             Stock.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"></P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(2)</TD><TD>Includes 12,646,874 shares, 65,633,821 shares underlying warrants,
                                                            25,000,000 shares underlying 1,250,000 shares of Series A Convertible
                                                            Preferred Stock, which is convertible, at the sole option of the holder,
                                                            into 20 shares of our common stock per share of Series A Convertible
                                                            Preferred Stock, and 22,614,220 shares underlying 1,130,711 shares
                                                            of Series B Convertible Preferred Stock, which is convertible, at
                                                            the sole option of the holder, into 20 shares of our common stock
                                                            per share of Series B Convertible Preferred Stock, which are beneficially
                                                            owned by Co-Investment Fund II, L. P. (the &ldquo;Fund&rdquo;), designee
                                                            of Cross Atlantic Capital Partners, Inc. Mr. Caldwell is a managing
                                                            partner of Cross Atlantic Capital Partners, Inc. Mr. Caldwell is also
                                                            a shareholder, director and officer of Co-Invest II Capital Partners,
                                                            Inc., which is the general partner of Co-Invest Management II, L.P.,
                                                            which is the general partner of the Fund. Mr. Caldwell disclaims beneficial
                                                            ownership of these securities, except to the extent of his pecuniary
                                                            interest therein.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(3)</TD><TD>Represents securities owned by the Fund, the designee of Cross
                                                            Atlantic Capital Partners, Inc., of which Brian Adamsky is secretary,
                                                            treasurer and chief financial officer of Cross Atlantic Capital Partners,
                                                            Inc. and of which Donald R. Caldwell is managing partner. Mr. Caldwell
                                                            is also a shareholder, director and officer of Co-Invest II Capital
                                                            Partners, Inc., which is the general partner of Co-Invest Management
                                                            II, L.P., which is the general partner of the Fund. Mr. Tecce and
                                                            Mr. Caldwell disclaim beneficial ownership of these securities, except
                                                            to the extent of their pecuniary interest therein.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(4)</TD><TD>Includes 1,750,000 shares underlying options and 33,333 shares
                                                            underlying warrants, which are exercisable within 60&nbsp;days of
                                                            December 31, 2012. Includes 3,000,000 shares underlying a warrant
                                                            to purchase 150,000 shares of Series A Convertible Preferred Stock,
                                                            which is exercisable within 60 days of December 31, 2012, which is
                                                            also convertible, at the sole option of the holder, into 20 shares
                                                            of our common stock per share of Series A Convertible Preferred Stock.
                                                            Includes 25,000 shares underlying 1,250 shares of Series A Convertible
                                                            Preferred Stock, which is convertible, at the sole option of the holder,
                                                            into 20 shares of our common stock per share of Series A Convertible
                                                            Preferred Stock. Excludes 750,000 shares underlying options, which
                                                            are not exercisable within 60&nbsp;days of December 31, 2012.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(5)</TD><TD STYLE="text-align: justify">Includes 150,000 shares underlying
                                                            warrants, which are exercisable within 60&nbsp;days of December 31,
                                                            2012.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(6)</TD><TD>Includes 250,000 shares underlying options and 58,333 shares underlying
                                                            warrants, all of which are exercisable within 60&nbsp;days of December
                                                            31, 2012. Includes 25,000 shares underlying 1,250 shares of Series
                                                            A Convertible Preferred Stock, which is convertible, at the sole option
                                                            of the holder, into 20 shares of our common stock per share of Series
                                                            A Convertible Preferred Stock.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(7)</TD><TD STYLE="text-align: justify">Includes 370,000 shares underlying
                                                            options, which are exercisable within 60&nbsp;days of December 31,
                                                            2012.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(8)</TD><TD STYLE="text-align: justify">Includes 200,000 shares underlying
                                                            options that are exercisable within 60&nbsp;days of December 31, 2012.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(9)</TD><TD>Includes 150,000 shares underlying options and 33,333 shares underlying
                                                            warrants, all of which are exercisable within 60&nbsp;days of December
                                                            31, 2012. Includes 25,000 shares underlying 1,250 shares of Series
                                                            A Convertible Preferred Stock, which is convertible, at the sole option
                                                            of the holder, into 20 shares of our common stock per share of Series
                                                            A Convertible Preferred Stock.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 13.7pt">(10)</TD><TD STYLE="text-align: justify">Includes 200,000 shares underlying
                                                             options and 33,333 shares underlying warrants that are exercisable
                                                             within 60&nbsp;days of December 31, 2012. Includes 25,000 shares
                                                             underlying 1,250 shares of Series A Convertible Preferred Stock,
                                                             which is convertible, at the sole option of the holder, into 20 shares
                                                             of our common stock per share of Series A Convertible Preferred Stock.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 13.7pt">(11)</TD><TD>Includes 1,000,000 shares underlying options and 33,333 shares
                                                             underlying warrants, all of which are exercisable within 60&nbsp;days
                                                             of December 31, 2012. Includes 25,000 shares underlying 1,250 shares
                                                             of Series A Convertible Preferred Stock, which are convertible, at
                                                             the sole option of the holder, into 20 shares of our common stock
                                                             per share of Series A Convertible Preferred Stock. Includes 3,000,000
                                                             shares underlying a warrant to purchase 150,000 shares of Series
                                                             A Convertible Preferred Stock, which is exercisable within 60 days
                                                             of December 31, 2012, which is also convertible, at the sole option
                                                             of the holder, into 20 shares of our common stock per share of Series
                                                             A Convertible Preferred Stock.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 13.7pt">(12)</TD><TD>Includes 62,300,491 shares underlying warrants that are exercisable
                                                             within 60 days of December 31, 2012. Includes 25,000,000 shares underlying
                                                             1,250,000 shares of Series A Convertible Preferred Stock, which are
                                                             convertible, at the sole option of the holder, into 20 shares of
                                                             our common stock per share of Series A Convertible Preferred Stock.
                                                             Includes 22,614,220 shares underlying 1,130,711 shares of Series
                                                             B Convertible Preferred Stock, which are convertible, at the sole
                                                             option of the holder, into 20 shares of our common stock per share
                                                             of Series B Convertible Preferred Stock.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 13.7pt">(13)</TD><TD>Includes 16,666,670 shares underlying warrants, which are exercisable
                                                             within 60&nbsp;days of December 31, 2012. Includes 33,333,340 shares
                                                             underlying 1,666,667 shares of Series B Convertible Preferred Stock,
                                                             which are convertible, at the sole option of the holder, into 20
                                                             shares of our common stock per share of Series B Convertible Preferred
                                                             Stock.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 13.7pt">(14)</TD><TD>Includes 1,333,340 shares underlying warrants, which are exercisable
                                                             within 60&nbsp;days of December 31, 2012. Includes 4,330,340 shares
                                                             underlying 216,667 shares of Series B Convertible Preferred Stock,
                                                             which are convertible, at the sole option of the holder, into 20
                                                             shares of our common stock per share of Series B Convertible Preferred
                                                             Stock.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(15)</TD><TD>Includes 1,000,000 shares held by The Clemens-Beaver Creek Limited
                                                             Partnership, of which Alvin H. Clemens is the general partner. Also
                                                             includes 100,000 shares held by Mr.&nbsp;Clemens&rsquo;s minor children.
                                                             Also includes 993,377 shares underlying warrants, all of which are
                                                             exercisable within 60&nbsp;days of December 31, 2012.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">TRANSACTIONS WITH RELATED PERSONS,
PROMOTERS AND CERTAIN CONTROL PERSONS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">From the beginning of our last fiscal
year until the date of this proxy statement, there has been no transaction, nor is there any transaction currently proposed, to
which we were, are, or would be a participant, in which the amount involved exceeded or would exceed the lesser of $120,000 or
one percent of the average of our total assets at year end for the last two completed fiscal years and in which any of our directors
or executive officers, any holder of more than 5% of our common stock or any member of the immediate family of any of these persons
or entities had or will have a direct or indirect material interest, other than the transactions described below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We believe that we have executed all of
the transactions described below on terms no less favorable to us than we could have obtained from unaffiliated third parties.
It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and
their affiliates are approved by a majority of our board of directors, including a majority of the independent and disinterested
members of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated
third parties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>On November
                                                                                                               20, 2012, we completed
                                                                                                               a private placement
                                                                                                               with certain accredited
                                                                                                               investors who hold
                                                                                                               more than 5% of
                                                                                                               our common stock,
                                                                                                               including The Co-Investment
                                                                                                               Fund II, L.P.,
                                                                                                               The Scarpa Family
                                                                                                               Trust, 2005 and
                                                                                                               Azeez Investors,
                                                                                                               LLC for an aggregate
                                                                                                               of 499,999 shares
                                                                                                               of our Series B
                                                                                                               Convertible Preferred
                                                                                                               Stock and warrants
                                                                                                               to purchase 4,999,990
                                                                                                               shares of our common
                                                                                                               stock. We agreed
                                                                                                               to sell to the
                                                                                                               investors 499,999
                                                                                                               investment units
                                                                                                               at a per unit price
                                                                                                               of $3.00, for an
                                                                                                               approximate aggregate
                                                                                                               total investment
                                                                                                               of $1,500,000,
                                                                                                               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, subject
                                                                                                               to adjustment.
                                                                                                               The units issued
                                                                                                               in the private
                                                                                                               placement are substantially
                                                                                                               equivalent to the
                                                                                                               Units being offered
                                                                                                               pursuant to this
                                                                                                               rights offering.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">PLAN OF DISTRIBUTION</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On or about ______,
2013, we will distribute the rights, rights certificates and copies of this prospectus to individuals who owned shares of capital
stock on _______, 2013. If you wish to exercise your rights and purchase Units, you should complete the rights certificate and
return it with payment for the shares, to us at the following address:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">InsPro Technologies Corporation</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">150 N. Radnor-Chester Road</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Suite B-101</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Radnor, Pennsylvania 19087</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Attn: Francis L. Gillan III</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">See further the section
of this prospectus entitled &ldquo;The Rights Offering.&rdquo; If you have any questions, you should contact Francis L. Gillan
III, at (484) 654-2200 or by electronic mail at <U>rightsoffering@inspro.com</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We do not know of
any existing agreements between any stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of
the Series B Convertible Preferred Stock or warrants underlying the rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following is a
discussion of the material U. S. federal income tax consequences to U.S. holders, as defined below, of the receipt, ownership
and exercise of the subscription rights distributed in the subscription rights offering, the ownership and disposition of Series
B Convertible Preferred Stock and warrants to purchase our common stock received upon exercise of the subscription rights, and
the ownership and disposition of common stock received upon the exercise of warrants to purchase our common stock or the conversion
of Series B Convertible Preferred Stock. The legal conclusions with respect to matters of U.S. federal income tax law identified
in this section, &ldquo;Material U.S. Federal Income Tax Considerations,&rdquo; are the opinion of our counsel, Morgan, Lewis
&amp; Bockius LLP. In this section, all references to &ldquo;we&rdquo; and &ldquo;our&rdquo; refer to the Company and not to Morgan,
Lewis &amp; Bockius LLP.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This discussion is
based on the Code, Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as
in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion is not
binding on the Internal Revenue Service or the IRS, or the courts. Accordingly, no assurance can be given that the tax consequences
described herein will not be challenged by the IRS or that such a challenge would not be sustained by a court. No ruling has been
sought from the IRS as to the U.S. federal income tax consequences set forth in this discussion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This discussion does
not address all aspects of U.S. federal income taxation that may be applicable to holders in light of their particular circumstances
or to holders subject to special treatment under the U.S. federal income tax laws, including, but not limited to, financial institutions,
brokers and dealers in securities or currencies, insurance companies, regulated investment companies, real estate investment trusts,
tax-exempt organizations, persons who hold their shares as part of a straddle, hedge, conversion or other risk-reduction transaction,
persons liable for the alternative minimum tax, persons who have received their common stock pursuant to which the subscription
rights in this rights offering have been granted through the exercise of employee stock options or otherwise as compensation for
services, partnerships or other entities treated as partnerships for U.S. federal income tax purposes, U.S. expatriates, and persons
whose functional currency is not the U.S. dollar and foreign taxpayers. This discussion does not describe any tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction, or any U.S. federal tax considerations other than income
taxation (such as alternative minimum, estate, gift or unearned income Medicare Contribution taxation). This discussion is limited
to U.S. holders which hold our shares as capital assets and does not address U.S. holders which beneficially hold our shares through
either a &ldquo;foreign financial institution&rdquo; (as such term is defined in Section 1471(d)(4) of the Code) or certain other
non-U.S. entities specified in Section 1472 of the Code. For purposes of this discussion, a &ldquo;U.S. holder&rdquo; is a holder
that is, for U.S. federal income tax purposes:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>a citizen or
                                                                                                               resident of the
                                                                                                               United States;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>a corporation,
                                                                                                               or other entity
                                                                                                               taxable as a corporation
                                                                                                               for U.S. federal
                                                                                                               income tax purposes,
                                                                                                               created or organized
                                                                                                               in or under the
                                                                                                               laws of the United
                                                                                                               States or any political
                                                                                                               subdivision thereof;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>an estate the
                                                                                                               income of which
                                                                                                               is subject to U.S.
                                                                                                               federal income
                                                                                                               taxation regardless
                                                                                                               of its source;
                                                                                                               or</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>a trust if
                                                                                                               (1) a U.S. court
                                                                                                               is able to exercise
                                                                                                               primary supervision
                                                                                                               over the administration
                                                                                                               of the trust and
                                                                                                               one or more &ldquo;United
                                                                                                               States persons&rdquo;
                                                                                                               (within the meaning
                                                                                                               of the Code) have
                                                                                                               the authority to
                                                                                                               control all substantial
                                                                                                               decisions of the
                                                                                                               trust or (2) has
                                                                                                               a valid election
                                                                                                               in effect under
                                                                                                               applicable Treasury
                                                                                                               Department regulations
                                                                                                               to be treated as
                                                                                                               a United States
                                                                                                               person.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If a partnership (including
any entity treated as a partnership for U.S. federal income tax purposes) receives the subscription rights or holds shares of
Series B Convertible Preferred Stock or warrants received upon exercise of the subscription rights or the oversubscription privilege,
the tax treatment of a partner in a partnership generally will depend upon the status of the partner and the activities of the
partnership. Such a partner or partnership should consult its own tax advisor as to the U.S. federal income tax consequences of
the receipt and ownership of the subscription rights or the ownership of shares of Series B Convertible Preferred Stock and warrants
received upon exercise of the subscription rights or, if applicable, upon exercise of the oversubscription privilege.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>YOU SHOULD CONSULT
YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF YOUR RECEIPT, OWNERSHIP, AND EXERCISE OF THE SUBSCRIPTION RIGHTS,
THE OWNERSHIP AND DISPOSITION OF SERIES B CONVERTIBLE PREFERRED STOCK AND WARRANTS TO PURCHASE OUR COMMON STOCK, AND THE OWNERSHIP
AND DISPOSITION OF COMMON STOCK RECEIVED UPON THE EXERCISE OF WARRANTS TO PURCHASE OUR COMMON STOCK OR THE CONVERSION OF SERIES
B CONVERTIBLE PREFERRED STOCK, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN
TAX LAWS.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-style: normal">Receipt of the
Subscription Rights</FONT></P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each subscription
right entitles eligible stockholder the right to purchase for $999.00 one Unit, consisting of 333 shares of our Series B Convertible
Preferred Stock and a five-year warrant to purchase 3,330 additional shares of our common stock at an exercise price of $0.15
per share. Generally, the distribution of stock by a corporation to its stockholders with respect their stock is not taxable to
such stockholders pursuant to Section 305(a) of the Code. For such purpose, a distribution of rights to acquire stock of the distributing
corporation constitutes a distribution of stock. However, if a distribution of stock or rights to acquire stock is within one
of several exceptions to the general rule of Section 305(a) set forth in Section 305(b) of the Code, the distribution may be taxable
to the stockholders of the distributing corporation as described below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Many of the exceptions
to the general rule of Section 305(a) set forth in Section 305(b) involve preferred stock, such as the distribution of convertible
preferred stock in certain circumstances pursuant to Section 305(b)(5). Treasury regulations define preferred stock not for its
preferred rights and privileges, but its inability to participate in corporate growth to any significant extent. It is the opinion
of Morgan, Lewis &amp; Bockius LLP that the Series B Convertible Preferred Stock should not be preferred stock for tax purposes
based on certain features of the preferred stock, including its right to participate in dividends on an as converted basis and
the right to a distribution in a liquidation or other capital event on an as converted basis if such distribution would be greater
than the liquidation preference right associated with the Series B Convertible Preferred Stock, as well as based on certain representations
relied upon in rendering the opinion, and, accordingly, that none of the Section 305(b) exceptions that apply to preferred stock
for tax purposes should apply to the rights offering and that the rights offering should be evaluated for Section 305 purposes
as if we have only one outstanding class of stock. This opinion is not binding on the IRS or any court and there can be no assurance
that the IRS or a court will agree with this opinion. The remainder of this discussion assumes that the Series B Convertible Preferred
Stock is not treated as preferred stock for tax purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Section 305(b)(2)
is an exception to the general rule of Section 305(a) that applies to a &ldquo;disproportionate distribution.&rdquo; Pursuant
to Section 305(b)(2), a distribution (or a series of distributions of which such a distribution is one) of stock rights constitutes
a &ldquo;disproportionate distribution,&rdquo; and is therefore taxable, if the distribution results in (a) the receipt of property
by some stockholders, and (b) an increase in the proportionate interest of other stockholders in the assets or earnings and profits
of the distributing corporation. For this purpose, the term &ldquo;property&rdquo; means money, securities and any other property,
except that such term does not include stock in the corporation making the distribution or rights to acquire such stock. A &ldquo;series
of distributions&rdquo; encompasses all distributions of stock made or deemed made by a corporation which have the result of receipt
of cash or property by some stockholders and an increase in the proportionate interests of other stockholders. It is not necessary
for a distribution of stock to be considered as one of a series of distributions that such distribution be pursuant to a plan
to distribute cash and property to some stockholders and to increase the proportionate interests of the other stockholders, rather
it is sufficient if there is a distribution (or a deemed distribution) having such effect. In addition, there is no requirement
that both elements of Section 305(b)(2) of the Code occur in the form of a distribution or series of distributions as long as
the result is that some stockholders receive cash and property and other stockholders&rsquo; proportionate interests increase.
Under the applicable Treasury regulations, where the receipt of cash or property occurs more than 36 months following a distribution
or series of distributions of stock, or where a distribution is made more than 36 months following the receipt of cash or property,
such distribution or distributions will be presumed not to result in the receipt of cash or property by some stockholders and
an increase in the proportionate interest of other stockholders, unless the receipt of cash or property by some stockholders and
the distribution or series of distributions are made pursuant to a plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">It is the opinion
of Morgan, Lewis &amp; Bockius LLP that the distribution of rights in the rights offering should not constitute an increase in
the proportionate interest of some stockholders in the assets or earnings and profits of the Company for the purpose of Section
305(b)(2) based on the fact that all of our stockholders will receive rights in the rights offering based upon their respective
ownership our common stock, as well as based on certain representations relied upon in rendering the opinion, and, accordingly,
that the rights offering should not constitute part of a &ldquo;disproportionate distribution,&rdquo; pursuant to Section 305(b)(2)
of the Code. This opinion is not binding on the IRS or any court and there can be no assurance that the IRS or a court will agree
with this opinion. The remainder of this discussion assumes that Section 305(b)(2) does not apply to the subscription rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Subject to the foregoing,
it is the opinion of Morgan, Lewis &amp; Bockius LLP that you should not recognize taxable income for U.S. federal income tax
purposes in connection with the receipt of the subscription right in the rights offering and the remainder of this discussion
so assumes. However, in the event the IRS successfully asserts or a court determines that your receipt of subscription rights
is currently taxable pursuant to Section 305(b)(2) of the Code, the discussion under the heading &ldquo;Alternative Treatment
of Subscription Rights&rdquo; describes the tax consequences that will result from such a determination.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Tax Basis and Holding Period of the Subscription Rights</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Your tax basis of
the subscription rights for U.S. federal income tax purposes will depend on the fair market value of the subscription rights you
receive and the fair market value of your existing shares of stock on the date you receive the subscription rights. The tax basis
of the subscription rights received by you in the subscription rights offering will be zero unless either (1) the fair market
value of the subscription rights on the date such subscription rights are distributed is equal to at least 15% of the fair market
value on such date of the shares with respect to which they are received or (2) you elect to allocate part of the tax basis of
such shares to the subscription rights. If either (1) or (2) is true, then, if you exercise the subscription rights, your tax
basis in your shares will be allocated between the subscription rights and the shares with respect to which the subscription rights
were received in proportion to their respective fair market values on the date the subscription rights are distributed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, any tax
basis allocated to the subscription rights must be apportioned between the right to receive shares of the Series B Convertible
Preferred Stock, or Preferred Stock Rights, and the right to receive warrants, or Warrant Rights, in proportion to their respective
fair market values on the date you receive the subscription rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have not obtained
an independent appraisal of the valuation of the subscription rights and, therefore, you should consult with your tax advisor
to determine the proper allocation of basis between the subscription rights and the shares with respect to which the subscription
rights are received.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Your holding period
for the subscription rights will include your holding period for the shares with respect to which the subscription rights were
received.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Expiration of the Subscription Rights</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you allow subscription
rights received in the subscription rights offering to expire, you will not recognize any gain or loss. If you have tax basis
in the subscription rights, the tax basis of the shares owned by you with respect to which such subscription rights were distributed
will be restored to the tax basis of such shares immediately prior to the receipt of the subscription rights in the subscription
rights offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-style: normal">Alternative Treatment
of Subscription Rights</FONT></P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Receipt</I></B>.
If the IRS were to successfully assert that the distribution of the subscription rights in the rights offering resulted in a &ldquo;disproportionate&rdquo;
distribution or is otherwise taxable pursuant to Section 305(b)(2), each holder would be considered to have received a distribution
with respect to such holder&rsquo;s stock in an amount equal to the fair market value of the subscription rights received by such
holder on the date of the distribution. This distribution generally would be taxed as dividend income to the extent of your ratable
share of our current and accumulated earnings and profits. The amount of any distribution in excess of our earnings and profits
will be applied to reduce, but not below zero, your tax basis in your stock, and any excess generally will be taxable to you as
capital gain (long-term, if your holding period with respect to your common stock is more than one year as of the date of distribution,
and otherwise short-term). Your tax basis in the subscription rights received pursuant to the rights offering would be equal to
their fair market value on the date of distribution and the holding period for the rights would begin upon receipt.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Expiration</I></B>.
Assuming the receipt of subscription rights in the rights offering is a taxable event, if your subscription rights lapse without
being exercised, you will recognize a capital loss equal to your tax basis in such expired subscription rights. The deductibility
of capital losses is subject to limitations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-style: normal">Exercise of the
Subscription Rights; Tax Basis and Holding Period of the Shares </FONT></P>

<P STYLE="font: italic bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Generally, you will
not recognize any gain or loss upon the exercise of the subscription rights received in the subscription rights offering by purchasing
Unit(s) for $999.00 per Unit. The tax basis of the Series B Convertible Preferred Stock acquired will be the sum of (i) that portion
of the subscription price allocable to the Series B Convertible Preferred Stock, plus (ii) the portion, if any, of the tax basis
of the subscription rights allocable to the Preferred Stock Rights. The tax basis of the warrants acquired will be the sum of
(i) that portion of the subscription price allocable to the warrants, plus (ii) the portion, if any, of the tax basis of the subscription
rights allocable to the Warrant Rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The holding period
for the Series B Convertible Preferred Stock and warrants acquired through exercise of the subscription rights will begin on the
date the subscription rights are exercised.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><B>Taxation of Warrants
</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">You generally will not recognize gain or
loss upon exercise of a warrant to acquire common stock. Your tax basis of the common stock received upon exercise of a warrant
for cash generally will equal the tax basis of the warrant, increased by the amount paid upon exercise of the warrant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Your holding period of common stock received
upon exercise of a warrant will begin on the date the warrant is exercised.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In the event a warrant lapses unexercised,
you will recognize a capital loss in an amount equal to the tax basis of the warrant. Such capital loss will be long-term if your
holding period of such warrant was more than one year at the time of lapse. The deductibility of capital losses is subject to
limitations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Taxation of Series B Convertible Preferred
Stock </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Distributions</I></B><I>.
</I>Generally, any distribution with respect to the Series B Convertible Preferred Stock that is paid out of our current or accumulated
earnings and profits, as determined for U.S. federal income tax purposes, will constitute a dividend and will be includible in
gross income by you when paid. Distributions with respect to the Series B Convertible Preferred Stock in excess of our current
or accumulated earnings and profits would be treated first as a non-taxable return of capital to the extent of your basis in the
Series B Convertible Preferred Stock (thus reducing such tax basis dollar-for-dollar), and thereafter as capital gain, which will
be long-term capital gain if the your holding period for such stock at the time of distribution exceeds one year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Sale, Exchange
or Other Disposition</I></B>. Upon a sale, exchange or other disposition of the Series B Convertible Preferred Stock (not including
a conversion of the Series B Convertible Preferred Stock into our common stock), you generally will recognize capital gain or
loss equal to the difference between the amount realized (not including any amount attributable to declared and unpaid dividends,
which generally will be taxable as described above, under &ldquo;&mdash; Taxation of Series B Convertible Preferred Stock &mdash;
Distributions,&rdquo; to holders that have not previously included such dividends in income) and your tax basis in the Series
B Convertible Preferred Stock so disposed. Such capital gain or loss generally will be long-term capital gain or loss if your
holding period for such stock at the time of disposition exceeds one year. The deductibility of capital losses is subject to limitations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Adjustment of
the Conversion Rate</I></B>. The conversion rate of the Series B Convertible Preferred Stock is subject to adjustment. Treasury
regulations promulgated under Section 305 of the Code could, under certain circumstances, treat a U.S. holder of the Series B
Convertible Preferred Stock as having received a constructive distribution includable in such U.S. holder&rsquo;s income in the
manner described above under &ldquo;&mdash; Taxation of Series B Convertible Preferred Stock &mdash; Distributions&rdquo; if and
to the extent that certain adjustments in the conversion rate (or failures to adjust) increase the proportionate interest of a
U.S. holder in our earnings and profits or assets. Thus, under certain circumstances, U.S. holders may recognize income in the
event of a constructive distribution even though they may not receive any cash or property. Adjustments to the conversion rate
made pursuant to a bona fide reasonable adjustment formula which has the effect of preventing dilution in the interest of the
U.S. holders of the Series B Convertible Preferred Stock, however, will generally not be considered to result in a constructive
dividend distribution.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Conversion of
the Series B Convertible Preferred Stock into Our Common Stock</I></B>. You generally will not recognize any gain or loss in respect
of the receipt of our common stock upon the conversion of the Series B Convertible Preferred Stock. The tax basis of our common
stock that you receive on conversion will equal the tax basis of the Series B Convertible Preferred Stock converted (reduced by
the portion of tax basis allocated to any fractional common share exchanged for cash, as described below), and the holding period
of such common stock received on conversion will generally include the period during which you held the Series B Convertible Preferred
Stock prior to conversion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cash received in lieu
of a fractional common share will generally be treated as a payment in a taxable exchange for such fractional common share, and
capital gain or loss will be recognized on the receipt of cash in an amount equal to the difference between the amount of cash
received and the amount of tax basis allocable to the fractional common share. Any cash received attributable to any declared
and unpaid dividends on the Series B Convertible Preferred Stock will be treated as described above under &ldquo;&mdash; Taxation
of Series B Convertible Preferred Stock &mdash; Distributions.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Taxation of Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Distributions</I></B><I>.
</I>Distributions received with respect to our common stock will be treated as described above under &ldquo;&mdash; Taxation of
Series B Convertible Preferred Stock &mdash; Distributions.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><B><I>Sale, Exchange or Other Disposition</I></B><I>.
</I>Upon a sale, exchange or other disposition of our common stock, you generally will recognize capital gain or loss in the manner
described above under &ldquo;&mdash; Taxation of Series B Convertible Preferred Stock &mdash; Sale, Exchange or Other Disposition.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Additional Medicare Tax on Net Investment Income </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">For tax years beginning after December
31, 2012, an additional 3.8% tax will be imposed on the &ldquo;net investment income&rdquo; of certain U.S. citizens and resident
aliens, and on the undistributed &ldquo;net investment income&rdquo; of certain estates and trusts. Among other items, &ldquo;net
investment income&rdquo; generally includes gross income from dividends and net gain from the disposition of property, such as
our Series A Convertible Preferred Stock and common stock, less certain deductions. You should consult your tax advisor with respect
to this additional tax.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Information Reporting and Backup Withholding </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In general, payments made to you of proceeds
from the sale or other disposition of warrants, Series B Convertible Preferred Stock, or our common stock may be subject to information
reporting to the IRS and possible U.S. federal backup withholding at the then applicable backup withholding rate. Backup withholding
will not apply if you furnish a correct taxpayer identification number (certified on the IRS Form W-9 or valid substitute Form
W-9) or otherwise establish that you are exempt from backup withholding. Backup withholding is not an additional tax. Amounts
withheld as backup withholding may be credited against your U.S. federal income tax liability. You may obtain a refund of any
excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and
furnishing any required information.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You should consult
your own tax advisor regarding your qualification for an exemption from backup withholding and the procedures for obtaining such
an exemption, if applicable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">EXPERTS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our consolidated financial
statements as of and for the years ended December 31, 2011 and 2010 included in this prospectus and in the registration statement
of which this prospectus is a part have been audited by Sherb &amp; Co., LLP, independent registered public accountants, to the
extent and for the periods set forth in their report and are incorporated in this prospectus in reliance upon the report given
upon the authority of Sherb &amp; Co., LLP as experts in auditing and accounting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">TRANSFER AGENT AND REGISTRAR</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The transfer agent
and registrar for our common stock is Pacific Stock Transfer Company, whose address is 4045 South Spencer Street, Suite 403, Las
Vegas, NV 89119, and whose phone number is (702) 361-3033.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">LEGAL MATTERS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The validity of the
securities being offered by this prospectus have been passed upon for us by Morgan, Lewis &amp; Bockius LLP, Philadelphia, Pennsylvania.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">WHERE YOU CAN FIND MORE INFORMATION</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have filed with
the Commission a registration statement on Form S-1, including exhibits, schedules and amendments filed with this registration
statement, under the Securities Act with respect to offers and resales of shares of our common stock by the selling stockholders
identified in this prospectus. This prospectus, which constitutes part of the registration statement, does not include all of
the information contained in the registration statement and its exhibits and schedules. You should refer to the registration statement
and its exhibits and schedules for additional information. Whenever we make reference in this prospectus to any of our contracts,
agreements or other documents, the references are not necessarily complete and you should refer to the exhibits filed with the
registration statement for copies of the actual contract, agreement or other document. Statements contained in this prospectus
as to the contents of any contract or other document referred to in this prospectus are not necessarily complete and, where that
contract is an exhibit to the registration statement, each statement is qualified in all respects by reference to the exhibit
to which the reference relates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You can read the registration
statement and our other filings with the Commission, over the Internet at the Commission&rsquo;s website at http://www.sec.gov.
You also may read and copy any document that we file with the Commission at its public reference room at Headquarters Office,
100 F Street, N.E., Washington, D.C. 20549.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">DISCLOSURE OF COMMISSION POSITION
ON<BR>
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">FINANCIAL STATEMENTS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">TABLE OF CONTENTS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><B><U>Page Number</U></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 90%; padding-right: 5.4pt; padding-left: 0">Management&rsquo;s Report on Internal Control Over Financial
    Reporting</TD>
    <TD NOWRAP STYLE="width: 10%; padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-2</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Report of Independent Registered Public Accounting Firm</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-3</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Consolidated Balance Sheets at December 31, 2011 and December 31, 2010</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-4</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Consolidated Statements of Operations for the Years Ended December 31, 2011
    and December 31, 2010</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-5</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Consolidated Statements of Changes in Shareholders&rsquo; Equity for the
    Years Ended December 31, 2011 and December 31, 2010</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-6</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Consolidated Statements of Cash Flows for the Years Ended December 31, 2011
    and December 31, 2010</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-7</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Notes to Consolidated Financial Statements</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-8 &ndash; F-42</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Consolidated Balance Sheets as of September 30, 2012 (UNAUDITED) and December
    31, 2011</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-43</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Consolidated Statements of Operations (UNAUDITED) for the three and nine
    months ended September 30, 2012 and 2011</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-44</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Consolidated Statements of Cash Flows (UNAUDITED) for the nine months ended
    September 30, 2012 and 2011</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-45</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">Notes to Consolidated UNAUDITED Financial Statements</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 0; vertical-align: bottom; text-align: left">F-46 &ndash; F-60</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Management Report on Internal Control
over Financial Reporting</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">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&rsquo;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">To the Board of Directors<BR>
InsPro Technologies Corporation<BR>
Radnor, Pennsylvania</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have audited the
accompanying consolidated balance sheets of InsPro Technologies Corporation and Subsidiaries as of December 31, 2011 and December
31, 2010, the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years ended
December 31, 2011 and December 31, 2010. These consolidated financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In our opinion, the
consolidated financial statements referred to above present fairly, in all material respects, the financial position of InsPro
Technologies Corporation and Subsidiaries as of December 31, 2011 and December 31, 2010, and the results of their operations and
their cash flows for the years ended December 31, 2011 and December 31, 2010, in conformity with accounting principles generally
accepted in the United States of America.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 70%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 30%; border-bottom: black 1pt solid; padding-left: 8.65pt">/s/ Sherb &amp; Co., LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-left: 8.65pt">Certified Public Accountants</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-left: 8.65pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Boca Raton, Florida<BR>
March 16, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES<BR>
CONSOLIDATED BALANCE SHEETS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">December&nbsp;31,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">December&nbsp;31,&nbsp;2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center">ASSETS</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">CURRENT ASSETS:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 72%; font-size: 10pt; padding-left: 9pt">Cash</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3,702,053</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">4,429,026</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Accounts receivable, net</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,506,234</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">709,503</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Prepaid expenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">116,649</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">158,245</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Other current assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,905</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">8,211</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Assets of discontinued operations</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">104,002</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">63,301</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Total current assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,431,843</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,368,286</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Restricted cash</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,152,573</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Property and equipment, net</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">496,692</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">613,618</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Intangibles, net</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">260,050</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">606,785</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Other assets</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">80,608</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">92,558</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; padding-left: 0.25in">Total assets</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">6,269,193</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">7,833,820</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center">LIABILITIES AND SHAREHOLDERS' EQUITY</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">CURRENT LIABILITIES:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Note payable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">8,586</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">17,311</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Accounts payable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">644,563</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">918,972</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Accrued expenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">521,383</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">346,808</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Current portion of capital lease obligations</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">109,872</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">158,138</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Due to related parties</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">8,370</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Deferred revenue</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">622,500</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">377,500</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total current liabilities</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1,906,904</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1,827,099</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">LONG TERM LIABILITIES:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Warrant liability</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,674,226</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4,030,340</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Capital lease obligations</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">113,943</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">165,612</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total long term liabilities</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1,788,169</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">4,195,952</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">SHAREHOLDERS' EQUITY:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-indent: -9pt; padding-left: 0.25in">Preferred stock ($.001 par value; 20,000,000 shares authorized)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: -9pt; padding-left: 0.25in">Series A convertible preferred stock;
    3,437,500 shares authorized, 1,276,750 shares issued and outstanding (liquidation value $12,767,500)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,864,104</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,864,104</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: -9pt; padding-left: 0.25in">Series B convertible preferred stock;
    5,000,000 shares authorized, 2,797,379 shares issued and outstanding (liquidation value $8,392,137)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,427,604</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,427,604</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: -9pt; padding-left: 0.25in">Common stock ($.001 par value; 300,000,000
    shares authorized, 41,543,655 shares issued and outstanding)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">41,543</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">41,543</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: -9pt; padding-left: 0.25in">Additional paid-in capital</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">37,038,318</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">36,764,016</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; text-indent: -9pt; padding-left: 0.25in">Accumulated deficit</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(42,797,449</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(43,286,498</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total shareholders' equity</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">2,574,120</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1,810,769</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-left: 0.25in">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; padding-left: 0.25in">Total liabilities and shareholders'
    equity</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">6,269,193</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">7,833,820</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 5.4pt; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 5.4pt; text-align: center">See accompanying notes to audited
consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Year Ended December 31,</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt">Revenues</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">9,057,816</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">6,077,358</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">Cost of revenues</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">6,948,872</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">6,563,842</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Gross profit (loss)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">2,108,944</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(486,484</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Selling, general and administrative expenses:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Salaries, employee benefits and related taxes</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,615,602</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,765,161</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Advertising and other marketing</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">125,130</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">160,903</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Depreciation and amortization</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">687,042</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">876,644</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Rent, utilities, telephone and communications</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">368,336</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">403,955</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Professional fees</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">439,006</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">653,123</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Other general and administrative</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">544,366</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">528,022</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">4,779,482</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">5,387,808</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Loss from operations</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(2,670,538</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(5,874,292</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Gain from discontinued operations</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">803,989</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,463,675</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Other income (expense):</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Gain on the change of the fair value of warrant liability</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,356,114</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,136,588</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Interest income</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">23,044</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">21,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Interest expense</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(23,560</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(247,417</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total other income (expense)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">2,355,598</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">910,171</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">Net income (loss)</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">489,049</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">(2,500,446</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Net income (loss) per common share - basic and fully diluted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Income (loss) from operations</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">(0.01</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">(0.12</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Gain from discontinued operations</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">0.02</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">0.06</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Net income (loss) per common share</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">0.01</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">(0.06</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Weighted average
    common shares outstanding - basic and fully diluted</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">41,543,655</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">41,543,655</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">See accompanying notes to audited consolidated
financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES<BR>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)<BR>
FOR THE YEARs ENDED DECEMBER 31, 2011 and 2010</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Series&nbsp;A&nbsp;Preferred&nbsp;Stock,</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Series&nbsp;B&nbsp;Preferred&nbsp;Stock,</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Common&nbsp;Stock,&nbsp;$.001</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Total</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center">$.001&nbsp;Par&nbsp;Value</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center">$.001&nbsp;Par&nbsp;Value</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Par&nbsp;Value</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Additional</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Shareholders'</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of<BR>
    Shares</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of<BR>
    Shares</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of<BR>
    Shares</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Paid-in<BR>
    Capital</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Accumulated<BR>
    Deficit</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Equity<BR>
    (Deficit)</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; width: 10%">Balance - December 31, 2009</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 7%; font-size: 10pt; font-weight: bold; text-align: right">1,000,000</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 7%; font-size: 10pt; font-weight: bold; text-align: right">1,983,984</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 7%; font-size: 10pt; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 7%; font-size: 10pt; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 7%; font-size: 10pt; font-weight: bold; text-align: right">41,543,655</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 7%; font-size: 10pt; font-weight: bold; text-align: right">41,543</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 7%; font-size: 10pt; font-weight: bold; text-align: right">36,380,493</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 7%; font-size: 10pt; font-weight: bold; text-align: right">(40,786,052</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">)</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 7%; font-size: 10pt; font-weight: bold; text-align: right">(2,380,032</TD><TD STYLE="width: 1%; font-size: 10pt; font-weight: bold; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Preferred stock and warrants issued in rights offering</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">276,750</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">880,120</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">880,120</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Preferred stock and warrants issued in private placement</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,000,001</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,609,525</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,609,525</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Warrant issued as compensation</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">332,994</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">332,994</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Preferred stock and warrants issued in connection with conversion of secured
    note from related party</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">797,378</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,818,079</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,818,079</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Amortization of deferred compensation</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">50,529</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">50,529</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Net loss for the period</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(2,500,446</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(2,500,446</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Balance - December 31, 2010</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">1,276,750</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">2,864,104</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">2,797,379</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">5,427,604</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">41,543,655</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">41,543</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">36,764,016</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">(43,286,498</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">)</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">1,810,769</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Amortization of deferred compensation</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">94,302</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">94,302</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Warrant issued as compensation</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">180,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">180,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Net income for the period</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">489,049</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">489,049</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Balance - December 31, 2011</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: right">1,276,750</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: right">2,864,104</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: right">2,797,379</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: right">5,427,604</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: right">41,543,655</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: right">41,543</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: right">37,038,318</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: right">(42,797,449</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-weight: bold; text-align: left">)</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-weight: bold; text-align: right">2,574,120</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">See accompanying notes to audited consolidated
financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For&nbsp;the&nbsp;Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Cash Flows From Operating Activities:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left; padding-left: 9pt">Net income (loss)</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">489,049</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">(2,500,446</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Adjustments to reconcile net loss to net cash used in operating
    activities:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Depreciation and amortization</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">687,042</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">876,644</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Stock-based compensation and consulting</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">274,302</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">383,523</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">(Gain) on change of fair value of warrant liability</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(2,356,114</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(1,136,588</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Loss on the disposal of equipment of discontinued operations</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">6,530</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Changes in assets and liabilities:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Accounts receivable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(796,731</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">305,566</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Prepaid expenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">41,596</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(74,411</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Other current assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,306</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(1,802</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Other assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">11,950</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">28,412</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Accounts payable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(274,409</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(330,911</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Accrued interest on related secured note from related
    party</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">199,876</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Accrued expenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">174,576</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(469,925</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Due to related parties</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">8,370</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0.25in">Deferred revenue</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">245,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">145,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Assets of discontinued operations</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(40,701</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(2,214,461</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 27pt">Net cash used in operating activities</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(1,539,134</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(4,774,623</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Cash Flows From Investing Activities:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Purchase of property and equipment</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(223,382</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(239,607</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 27pt">Net cash used in investing activities</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(223,382</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(239,607</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Cash Flows From Financing Activities:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Gross proceeds from note payable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">37,540</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">119,875</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Payments on note payable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(46,265</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(110,168</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Gross proceeds from secured note from related party</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,000,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Payments on secured note from related party</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(2</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Fees paid in connection with secured note from related party</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(8,370</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(18,389</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Gross proceeds from capital leases</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">58,791</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">137,310</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Payments on capital leases</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(158,726</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(151,099</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Restricted cash in connection with letters of credit</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,152,573</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,471</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Gross proceeds from sales of preferred stock and warrants</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7,107,001</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Fees paid in connection with offering</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(46,396</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 27pt">Net cash provided by financing activities</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1,035,543</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">8,039,603</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 27pt">Net increase (decrease) in cash</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(726,973</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,025,373</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">Cash - beginning of the period</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">4,429,026</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1,403,653</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Cash - end of the period</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">3,702,053</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">4,429,026</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Supplemental
    Disclosures of Cash Flow Information Cash payments for interest</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">23,560</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">47,541</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Non cash financing activities:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Accrued Interest on related party
    note</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">139,398</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Repayment of secured note upon conversion
    into equity</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">(2,392,134</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Preferred stock and warrants issued
    upon the conversion of secured note</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">2,367,874</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">See accompanying notes to audited consolidated
financial statements.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Organization</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro Technologies Corporation (the &ldquo;Company&rdquo;,
&ldquo;ITCC&rdquo;, &ldquo;we&rdquo;, &ldquo;us&rdquo; or &ldquo;our&rdquo;) was incorporated under the laws of the state of Nevada
on October 21, 2004 as Darwin Resources Corp., (&ldquo;Darwin-NV&rdquo;). On November 22, 2005, Darwin-NV merged with and into
its newly-formed wholly-owned subsidiary, Darwin Resources Corp., a Delaware corporation (&ldquo;Darwin-DE&rdquo;), solely for
the purpose of changing the Company&rsquo;s state of incorporation from Nevada to Delaware. On November 23, 2005, HBDC II, Inc.,
a newly-formed wholly-owned subsidiary of Darwin-DE, was merged with and into Health Benefits Direct Corporation, a privately-held
Delaware corporation (&ldquo;HBDC&rdquo;), and the name of the resulting entity was changed from Health Benefits Direct Corporation
to HBDC II, Inc. Following the merger, Darwin-DE changed its name to Health Benefits Direct Corporation. On November 29, 2010,
Health Benefits Direct Corporation changed its name to InsPro Technologies Corporation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">HBDC was formed in January 2004 for the
purpose of acquiring, owning and operating businesses engaged in direct marketing and distribution of health and life insurance
products, primarily utilizing the Internet. On September 9, 2005, HBDC acquired three affiliated Internet health insurance marketing
companies, namely Platinum Partners, LLC, a Florida limited liability company, Health Benefits Direct II, LLC, a Florida limited
liability company, and Health Benefits Direct III, LLC, a Florida limited liability company. HBDC issued 7,500,000 shares of its
common stock and a warrant to purchase 50,000 shares of its common stock, in the aggregate, in exchange for 100% of the limited
liability company interests of these companies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The acquisition of HBDC by the Company
was accounted for as a reverse merger because, on a post-merger basis, the former HBDC shareholders held a majority of the outstanding
common stock of the Company on a voting and fully diluted basis. As a result, HBDC was deemed to be the acquirer for accounting
purposes. Accordingly, the consolidated financial statements presented for the period ended December 31, 2005, are those of HBDC
for all periods prior to the acquisition, and the financial statements of the consolidated companies from the acquisition date
forward. The historical shareholders' deficit of HBDC prior to the acquisition has been retroactively restated (a recapitalization)
for the equivalent number of shares received in the acquisition after giving effect to any differences in the par value of the
Company and HBDC's common stock, with an offset to additional paid-in capital. The restated consolidated retained earnings of
the accounting acquirer, HBDC, are carried forward after the acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2005 through October 1, 2007 our
operations were primarily that of our former Telesales and Insurint businesses. We effectively sold our former Telesales business
in 2009 and our former Insurint business in 2010. Our former Telesales and Insurint businesses are now classified as part of our
discontinued operations. Today w e are a technology company that provides software applications for use by insurance administrators
in the insurance industry. Our business focuses primarily on our InsPro software application.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We acquired Atiam Technologies, L.P. on
October 1, 2007 through our Atiam Technologies, LLC subsidiary. During the second quarter of 2009, Atiam Technologies, LLC was
renamed InsPro Technologies, LLC (&ldquo;InsPro LLC&rdquo;). InsPro LLC is a provider of comprehensive, web-based insurance administration
software applications. InsPro LLC&rsquo;s flagship software product is InsPro Enterprise, which was introduced in 2004. InsPro
LLC offers InsPro Enterprise on both a licensed and an ASP (Application Service Provider) basis. InsPro Enterprise is an insurance
administration and marketing system that supports group and individual business lines, and efficiently processes agent, direct
market, worksite and web site generated business. InsPro LLC&rsquo;s clients include insurance carriers and third party administrators.
InsPro LLC realizes revenue from the sale of software licenses, application service provider fees, software maintenance fees and
consulting and implementation services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-weight: normal">INSPRO
TECHNOLOGIES CORPORATION AND SUBSIDIARIES</FONT><BR>
<FONT STYLE="font-weight: normal">NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</FONT><BR>
<FONT STYLE="font-weight: normal">December 31, 2011</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 1 &ndash; <U>BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES</U> <U>(continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Basis of presentation</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The consolidated financial statements
are prepared in accordance with generally accepted accounting principles in the United States of America (&quot;US GAAP&quot;).
The consolidated financial statements of the Company include the Company and its subsidiaries. All material inter-company balances
and transactions have been eliminated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For purposes of comparability, certain
prior period amounts have been reclassified to conform to the 2011 presentation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Use of estimates</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 2011 and 2010 include the warrant liability,
allowance for doubtful accounts, stock-based compensation, the useful lives of property and equipment and intangible assets, and
revenue recognition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Cash and cash equivalents</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company considers all liquid debt
instruments with original maturities of three months or less to be cash equivalents.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Restricted cash</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Restricted cash pertained to all cash
and cash equivalents that were held in restricted accounts pertaining to the Company&rsquo;s letters of credit as restricted cash.
See Note 11 &ndash; Restricted Cash, Commitments and Contingencies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Accounts receivable</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 December 31, 2011 and 2010, the Company has established, based on a review of its outstanding
balances, an allowance for doubtful accounts in the amount of $0 and $0, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table lists the percentage
of the Company&rsquo;s accounts receivable balance from the Company&rsquo;s two largest InsPro Enterprise clients.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center">As of December 31,</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Largest InsPro client</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">33</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">%</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">42</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Second largest InsPro client</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">27</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">15</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Fair value of financial instruments</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The carrying amounts of financial instruments,
including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and capital leases
approximated fair value as of December 31, 2011, and December 31, 2010, because of the relatively short-term maturity of these
instruments and their market interest rates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective January&nbsp;1, 2008, the Company
adopted FASB ASC 820, &ldquo;Fair Value Measurements and Disclosures&rdquo; (&ldquo;ASC 820&rdquo;), 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. The adoption of ASC&nbsp;820 did not have an impact on the
Company&rsquo;s financial position or operating results, but did expand certain disclosures.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">ASC&nbsp;820 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Additionally, ASC&nbsp;820 requires the use of valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs. These inputs are prioritized below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: justify">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt">Level 1:</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Observable inputs such as quoted market prices in active markets for
    identical assets or liabilities</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; text-align: justify">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: justify">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt">Level&nbsp;2:</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Observable market-based inputs or unobservable inputs that are corroborated
    by market data</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; text-align: justify">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt; text-align: justify">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.8pt">Level&nbsp;3:</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: justify">Unobservable inputs for which there is little or no market data, which
    require the use of the reporting entity&rsquo;s own assumptions.</TD></TR>
<TR>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 84%">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company measured its warrant liability
using Level 3 inputs as defined by ASC 820.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Property and equipment</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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, &quot;Accounting
for the Impairment or Disposal of Long-Lived Assets,&quot; 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Intangible assets</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Intangible assets consist of assets acquired
in connection with the acquisition of InsPro LLC and costs incurred in connection with the development of the Company&rsquo;s
software. See Note 3 &ndash; InsPro Technologies Acquisition and Note 5 &ndash; Intangible Assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s capitalization of
software development costs for software used internally begins upon the establishment of technological feasibility of the software.
The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product
revenues, estimated economic life and changes in software and hardware technology. Capitalized software development costs are
amortized utilizing the straight-line method over the estimated economic life of the software not to exceed three years. We regularly
review the carrying value of software development assets and a loss is recognized when the unamortized costs are deemed unrecoverable
based on the estimated cash flows to be generated from the applicable software.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s InsPro LLC subsidiary
capitalized certain costs valued in connection with developing or obtaining software for external use<I>.</I> These costs, which
consist of direct technology labor costs, are capitalized subsequent to the establishment of technological feasibility and until
the product is available for general release. Both prior and subsequent costs relating to the establishment of technological feasibility
are expensed as incurred. Development costs associated with product enhancements that extend the original product&rsquo;s life
or significantly improve the original product&rsquo;s marketability are also capitalized once technological feasibility has been
established. Software development costs are amortized on a straight-line basis over the estimated useful lives of the products
not to exceed two years, beginning with the initial release to customers. The Company continually evaluates whether events or
circumstances have occurred that indicate the remaining useful life of the capitalized software development costs should be revised
or the remaining balance of such assets may not be recoverable. The Company evaluates the recoverability of capitalized software
based on the net realizable value of its software products, as defined by the estimated future revenue from the products less
the estimated future costs of completing and disposing of the products, compared to the unamortized capitalized costs of the products.
Capitalized software development costs were fully amortized as of December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Impairment of long-lived assets</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Warrant liability</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company issued warrants, which contain
certain anti-dilution provisions that reduce the exercise price of the warrants in certain circumstances.&nbsp;&nbsp;See Note
8 &ndash; Equity - Common Stock Warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Upon the Company&rsquo;s adoption of the
Derivative and Hedging Topic of the FASB Accounting Standards Codification (&ldquo;ASC 815&rdquo;) on January&nbsp;1, 2009, the
Company determined that the warrants with provisions that reduce the exercise price of the warrants did not qualify for a scope
exception under ASC 815 as they were determined to not be indexed to the Company&rsquo;s stock as prescribed by ASC 815.&nbsp;&nbsp;On
January 1, 2009, the warrants, under ASC 815, were reclassified from equity to warrant liability for the then relative fair market
value of $678,891.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company determined that the fair value
of the warrant liability for warrants issued during 2010 to be $3,145,016 in aggregate. The fair value of the warrant liability
for warrants issued during 2010 was determined on the dates of their issuance, which was recorded in warrant liability, using
the Black Scholes Option Pricing Model based on an expected term of 5 years, an assumed dividend yield of 0% and the following
assumptions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">Warrant&nbsp;Issue&nbsp;Date</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Warrant<BR> Exercise&nbsp;Price</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Common<BR> Stock&nbsp;Closing<BR> Price</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Aggregate<BR> Number&nbsp;of<BR> Warrants</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Volatility</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Risk&nbsp;Free&nbsp;Interest<BR> Rate</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Fair&nbsp;Value</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 16%; font-size: 10pt; text-align: center">3/26/2010</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">0.20</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">0.041</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">5,535,000</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">345</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">%</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">0.14</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">%</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">226,880</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: center">9/30/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.120</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">18,000,010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">392</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.19</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,159,973</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center">11/29/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.100</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,000,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">404</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.18</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">199,998</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt">12/22/2010</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.070</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7,973,780</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">476</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.18</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">558,165</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">3,145,016</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the year ended December 31, 2010,
the Company recorded a gain on the change in fair value of derivative liability of $1,136,588 to mark to market for the decrease
in fair value of the warrants during the year ended December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company determined that the fair value
of the warrant liability at December 31, 2010 to be $4,030,340. The fair value was determined using the Black Scholes Option Pricing
Model based on the following assumptions:&nbsp;dividend yield: 0%, risk free rate: 0.2% and the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">Warrant&nbsp;Issue&nbsp;Date</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Warrant<BR> Exercise&nbsp;Price</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Aggregate<BR> Number&nbsp;of<BR> Warrants</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Expected&nbsp;Term<BR> (Years)&nbsp;of<BR> Warrants</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Volatility</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Fair&nbsp;Value</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 30%; font-size: 10pt; text-align: center">1/15/2009</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">0.15</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">26,666,667</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3.0</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">408</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">%</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,732,347</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: center">3/26/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7,380,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.2</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">446</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">479,697</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center">9/30/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">18,000,010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.8</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">472</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,170,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: center">11/29/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,000,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.9</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">480</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">130,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt">12/22/2010</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7,973,780</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5.0</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">484</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">518,296</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">4,030,340</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table presents a reconciliation
of the warrant liability measured at fair value on a recurring basis using significant unobservable input (Level 3) for the year
ended December 31, 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 86%; font-size: 10pt">Warrant liability balance as of December 31, 2009</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">2,021,912</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Fair value of warrants issued during the year ended December 31, 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,145,017</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Fair value of warrants whose anti-dilution provisions expired during the year
    ended December 31, 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(1,123,710</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Decrease in the fair value of warrants liability during
    the year ended December 31, 2010</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(12,879</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Warrant liability balance as of December 31, 2010</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">4,030,340</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the year ended December 31, 2011,
the Company recorded a gain on the change in fair value of derivative liability of $2,356,114 to mark to market for the decrease
in fair value of the warrants during the year ended December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company determined the fair value
of the warrant liability at December 31, 2011 was $1,674,226. The fair value was determined using the Black Scholes Option Pricing
Model based on the following assumptions:&nbsp;dividend yield: 0%, risk free rate: 0.02% and the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">Warrant&nbsp;Issue&nbsp;Date</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Warrant<BR> Exercise&nbsp;Price</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Aggregate<BR> Number&nbsp;of<BR> Warrants</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Expected&nbsp;Term<BR> (Years)&nbsp;of<BR> Warrants</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Volatility</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Fair&nbsp;Value</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 30%; font-size: 10pt; text-align: center">1/15/2009</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">0.15</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">26,666,667</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">2.0</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">521</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">%</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">719,674</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: center">3/26/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7,380,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.2</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">587</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">199,260</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center">9/30/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">18,000,010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.8</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">599</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">486,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: center">11/29/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,000,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.9</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">600</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">54,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 1pt">12/22/2010</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7,973,780</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.0</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">600</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">215,292</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">1,674,226</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table presents a reconciliation
of the warrant liability measured at fair value on a recurring basis using significant unobservable input (Level 3) for the year
ended December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 86%; font-size: 10pt">Warrant liability balance as of December 31, 2010</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">4,030,340</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Decrease in the fair value of warrant liability during
    the year ended December 31, 2011, included in net loss</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(2,356,114</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Warrant liability balance as of December 31, 2011</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">1,674,226</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Income taxes</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company accounts for income taxes
under the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Income (loss) per common share</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 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 2011 and 2010
are excluded from the calculation of diluted loss per common share because it is anti-dilutive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company's common stock equivalents
include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">December&nbsp;31,<BR> 2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">December&nbsp;31,<BR> 2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Series A convertible preferred stock issued and outstanding</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">25,535,000</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">25,535,000</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Series B convertible preferred stock issued and outstanding</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">55,947,580</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">55,947,580</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Options, issued, outstanding and exercisable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4,510,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4,240,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Warrants to purchase common stock, issued, outstanding and exercisable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">91,987,344</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">93,162,344</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Warrants to purchase series A convertible preferred stock,
    issued, outstanding and exercisable</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">6,000,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">3,000,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">183,979,924</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">181,884,924</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Revenue recognition</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro LLC offers InsPro Enterprise 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. Alternatively, ASP hosting service enables a client to lease
the InsPro Enterprise software, paying only for that capacity required to support their business. ASP clients access InsPro Enterprise
installed on InsPro LLC owned servers located at InsPro LLC&rsquo;s offices or at a third party&rsquo;s site.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro LLC&rsquo;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro LLC&rsquo;s consulting and implementation
services are generally associated with the implementation of an 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro LLC&rsquo;s revenue is generally
recognized under ASC 985-605. For software arrangements involving multiple elements, 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 collectibility is probable. Revenue related to post-contract customer
support (&ldquo;PCS&rdquo;), 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)&nbsp;delivery of such element or (ii)&nbsp;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 collectibility 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 module, the Company allocates the total arrangement
fee among the modules based on the relative fair value of each of the modules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The unearned portion of InsPro LLC&rsquo;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">See Note 2 - Discontinued Operations for
revenue recognition for discontinued operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Cost of revenues</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Cost of revenues includes direct labor
and associated costs for employees and independent contractors performing InsPro Enterprise design, development, implementation
and testing together with customer management, training and technical support, as well as a portion of facilities, equipment and
software costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Advertising and other marketing</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Advertising and other marketing costs
are expensed as incurred.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Concentrations of credit risk</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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
(&ldquo;FDIC&rdquo;). In 2010 the FDIC insurance coverage limit has been permanently increased to $250,000 per depositor, per
institution as a result of the Dodd-Frank Wall Street and Consumer Protection Act. Beginning December 31, 2010, the FDIC has implemented
a new temporary insurance category to provide unlimited FDIC insurance coverage for funds held in noninterest-bearing transaction
accounts at insured banks. This temporary category will remain in effect through December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At December 31, 2011, the Company had
$3,702,053 of cash in United States bank deposits, of which $1,529,216 was federally insured and $2,172,837 exceeded federally
insured limits.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table lists the percentage
of the Company&rsquo;s revenue was earned from the Company&rsquo;s two largest InsPro Enterprise clients.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="border-collapse: collapse; width: 60%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD COLSPAN="4" STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center; vertical-align: top">For the Year ended
    December 31,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify; width: 40%">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center; width: 10%"><U>2011</U></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify; width: 11%">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify; width: 39%"><U>2010</U></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Largest InsPro client</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">29%</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">33%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Second largest InsPro client</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: center">20%</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">16%</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Stock-based compensation</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Non-employee stock based compensation</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Registration rights agreements</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company classifies as liability instruments
the fair value of registration rights agreements when such agreements (i) require it to file, and cause to be declared effective
under the Securities Act of 1933 as amended (the &ldquo;Securities Act&rdquo;), a registration statement with the Commission within
contractually fixed time periods, and (ii) provide for the payment of liquidating damages in the event of its failure to comply
with such agreements. Registration rights with these characteristics are accounted for as (i) derivative financial instruments
at fair value and (ii) contracts that are (a) indexed to and potentially settled in an issuer's own stock and (b) permit gross
physical or net share settlement with no net cash settlement alternative are classified as equity instruments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At December 31, 2011, the Company does
not believe that it is probable that the Company will incur a penalty in connection with the Company&rsquo;s registration rights
agreements. Accordingly no liability was recorded as of December 31, 2011. See Note 8- Shareholders Equity &ndash; Registration
and Participation Rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Recent accounting pronouncements</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In May&nbsp;2011, the FASB issued guidance
and clarification about the application of existing fair value measurements and disclosure requirements. This guidance will be
effective for interim and fiscal periods beginning after December&nbsp;15, 2011. We will review the requirements under the standard
to determine what impacts, if any, the adoption would have on our consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In June&nbsp;2011, FASB&nbsp;issued guidance
which eliminates the current option to report other comprehensive income and its components in the statement of changes in equity.
The guidance requires all nonowner changes in stockholders&rsquo; equity to be presented either in a single continuous statement
of comprehensive income or in two separate but consecutive statements, and requires presentation on the face of the financial
statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income. This
guidance is effective for fiscal periods beginning after December&nbsp;15, 2011. The adoption of this standard will not impact
our consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In September 2011, the FASB amended its
guidance regarding the disclosure requirements for employers participating in multiemployer pension and other postretirement benefit
plans (multiemployer plans) to improve transparency and increase awareness of the commitments and risks involved with participation
in multiemployer plans. The new accounting guidance requires employers participating in multiemployer plans to provide additional
quantitative and qualitative disclosures to provide users with more detailed information regarding an employer&rsquo;s involvement
in multiemployer plans. The provisions of this new guidance are effective for annual periods beginning with fiscal years ending
after December&nbsp;15, 2011, with early adoption permitted. The Company anticipates that adoption of these additional disclosures
will not have a material effect on our consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In September 2011, the FASB issued ASU
No. 2011-08, <I>Intangibles-Goodwill and Other (Topic 350)-Testing Goodwill for Impairment</I> . The amendments in this ASU are
effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011. The Company
does not anticipate the provisions of ASU 2011-08 will have a material effect on our consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Other accounting standards that have been
issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the
consolidated financial statements upon adoption.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 2 &ndash; <U>DISCONTINUED OPERATIONS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has classified its former
telesales call center and external agent produced agency business (the &ldquo;Agency Business&rdquo;), its former Insurint business,
and its leased offices located in New York and Florida as discontinued operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the first quarter of 2009, the
Company ceased the direct marketing and sale of health and life insurance and related products to individuals and families in
its Telesales call center. The Company also determined to discontinue selling health and life insurance and related products to
individuals and families through its non employee ISG agents. On February 20, 2009 (the &ldquo;Closing Date&rdquo;), the Company
entered into and completed the sale of the Agency Business to eHealth Insurance Services, Inc. (&ldquo;eHealth&rdquo;), an unaffiliated
third party, pursuant to the terms of a Client Transition Agreement (the &ldquo;Agreement&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the Agreement the Company
transferred to eHealth the broker of record status and the right to receive commissions on certain of the in-force individual
and family major medial health insurance policies and ancillary dental, life and vision insurance policies issued by Aetna, Inc.,
Golden Rule, Humana, PacifiCare, Inc., Assurant and United Healthcare Insurance Co. (collectively, the &ldquo;Specified Carriers&rdquo;)
on which the Company was designated as broker of record as of the Closing Date (collectively, the &ldquo;Transferred Policies&rdquo;
and each, a &ldquo;Transferred Policy&rdquo;). Certain policies and products were excluded from the transaction, including the
Company&rsquo;s agency business generated through its ISG agents, all short term medical products and all business produced through
carriers other than the Specified Carriers. In addition, the Agreement also provides for the transfer to eHealth of certain lead
information relating to health insurance prospects (the &ldquo;Lead Database&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 2 &ndash; <U>DISCONTINUED OPERATIONS
(continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the Agreement eHealth has
agreed to pay to HBDC II, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (&ldquo;HBDC II&rdquo;), a
portion of each commission payment received by eHealth and reported by the Specified Carrier relating to a Transferred Policy
for the duration of the policy, provided that eHealth remains broker of record on such Transferred Policy.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 31, 2010, the Company entered
into and completed an asset purchase agreement for the sale of Insurint (the &ldquo;Insurint Sale Agreement&rdquo;) with an unaffiliated
third party. Pursuant to the terms of the Insurint Sale Agreement, the Company sold substantially all of the assets used in the
Company&rsquo;s former Insurint business, including the Insurint software, the www.insurint.com web site, other intellectual property
specific to Insurint, including but not limited to the customer base, and all future revenue pertaining to Insurint. The buyer
agreed to assume future Insurint commitments and expenses subsequent to March 31, 2010. Pursuant to the Insurint Sale Agreement,
the Company will receive in aggregate $625,000 in cash from the buyer of Insurint, of which $312,500 was received on April 1,
2010 and the $312,500 balance will be received over 23 equal monthly installments in the amount of $13,020.83, with the first
monthly payment due on May 1, 2010, and the last monthly payment in the amount of $13,020.91 and due on April 1, 2012. The Company
recorded a gain on the sale of Insurint of $578,569 on March 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Revenue Recognition for Discontinued
Operations</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our discontinued operations generates
revenue primarily from transition policy commissions pursuant to the Agreement, renewal commissions paid to the Company by insurance
companies based upon the insurance policies sold to consumers by the Company&rsquo;s Agency Business prior to the Closing Date,
and sub-leasing revenue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We recognize commissions and other revenue
from carriers after we receive notice that the insurance carrier has received payment of the related premium. The Company recognizes
as revenue commission payments received from eHealth in connection with the Agreement upon the Company&rsquo;s notification by
eHealth of such amounts.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company also generated revenue in
2010 from the sub-lease of our leased New York City office, which was sub-leased on a month to month basis through December 31,
2010, and also from the sub-lease of our leased Deerfield Beach Florida office, which was leased under operating leases through
February 28, 2011. We recognized sub-lease revenue when lease rent payments are due in accordance with the sub-lease agreements.
Recognition of sub-lease revenue commences when control of the facility has been given to the tenant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The financial position of discontinued
operations was as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">December&nbsp;31,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">December&nbsp;31,&nbsp;2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; font-size: 10pt; text-align: left">Accounts receivable</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; text-align: right">49,779</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; text-align: right">149,913</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Deferred compensation advances</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">200</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Prepaid expenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4,332</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Other current assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">54,227</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">174,103</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Other assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">51,227</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Accounts payable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(82,431</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Accrued expenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(134,203</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Sub-tenant security deposit</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(99,840</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">Net current assets of discontinued operations</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">104,006</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">63,301</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 2 &ndash; <U>DISCONTINUED OPERATIONS
(continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The results of discontinued operations
do not include any allocated or common overhead expenses. The results of operations of discontinued operations were as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For&nbsp;the&nbsp;Year&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Revenues:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 64%; font-size: 10pt; text-align: left">Commission and other revenue from carriers</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; text-align: right">178,705</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; text-align: right">452,360</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Transition policy commission pursuant to the Agreement</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">703,311</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,114,477</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Gain on the sale of Insurint</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">578,569</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Gain on disposal of property and equipment</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">6,530</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Lead sale revenue</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">156</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Insurint revenue</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">53,340</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">Sub-lease revenue</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">150,054</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1,219,723</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1,032,070</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">3,425,155</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Operating expenses:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Salaries, employee benefits and related taxes</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">11,200</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">238,698</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Rent, utilities, telephone and communications</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">171,687</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">312,068</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 9pt">Professional fees</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(1,961</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">182,424</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 9pt">Other general and administrative</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">47,155</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">228,290</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 9pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">228,081</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">961,480</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">Gain from discontinued operations</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">803,989</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">2,463,675</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 3 - <U>ACQUISITION OF INSPRO TECHNOLOGIES</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On October&nbsp;1, 2007, HBDC Acquisition,
LLC (&ldquo;HBDC Sub&rdquo;), a Delaware limited liability company and wholly-owned subsidiary of the Company, entered into an
Agreement to Transfer Partnership Interests (the &ldquo;Bilenia Agreement&rdquo;) with the former partners (the &ldquo;Bilenia
Partners&rdquo;) of BileniaTech, L.P., a Delaware limited partnership (&ldquo;Bilenia&rdquo;), whereby HBDC Sub purchased all
of the outstanding general and limited partnership interests of Atiam Technologies, L.P., a Delaware limited partnership, owned
by the Bilenia Partners. Bilenia owned approximately 40% of Atiam Technologies, L.P. The execution of the Bilenia Agreement and
the transfer of the Atiam partnership interests to HBDC Sub thereunder were conditions precedent to the closing of the Merger
Agreement (as defined below) on October&nbsp;1, 2007 (the &ldquo;Atiam Closing Date&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The aggregate amount paid by HBDC Sub
to the Bilenia Partners for the Atiam partnership interests under the Bilenia Agreement was $1,000,000, consisting of $500,000
in cash and 224,216 shares of the Company&rsquo;s common stock, which shares had an aggregate value of $500,000 based on the average
closing price per share ($2.23) of Company common stock on The Over the Counter Bulletin Board (&ldquo;OTCBB&rdquo;) on the five
consecutive trading days preceding the Atiam Closing Date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 21, 2007, the Company entered
into an Agreement and Plan of Merger (the &ldquo;Atiam Merger Agreement&rdquo;) by and among the Company, HBDC, System Consulting
Associates, Inc., a Pennsylvania corporation (&ldquo;SCA&rdquo;), and the shareholders of SCA party thereto (the &ldquo;Shareholders&rdquo;).
SCA owned approximately 60% of Atiam Technologies, L.P. The Company and SCA closed on the Merger on October 1, 2007.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 3 &ndash; <U>ACQUISITION OF INSPRO
TECHNOLOGIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Atiam Merger Agreement provided for
a business combination whereby SCA would be merged with and into HBDC Sub, with HBDC Sub continuing as the surviving corporation
and as a wholly-owned subsidiary of the Company (the &ldquo;Atiam Merger&rdquo;). The aggregate amount paid by the Company with
respect to all outstanding shares of capital stock of SCA (such amount, the &ldquo;Atiam Merger Consideration&rdquo;) was $2,000,000,
consisting of (a) $850,000 in cash and (b)&nbsp;515,697 unregistered shares of the Company&rsquo;s common stock, which number
of shares had a value of $1,150,000 based on the average closing price per share ($2.23) of Common Stock on OTCBB on the five
consecutive trading days preceding the closing date. Upon the effectiveness of the Atiam Merger, each share of SCA common stock
issued and outstanding immediately prior to the closing date was converted into the right to receive a pro rata portion of the
Atiam Merger Consideration. The Company placed certificates representing 134,529 shares, or an amount equal to $300,000, of the
Company&rsquo;s common stock that otherwise would be payable to the Shareholders as Atiam Merger Consideration into an escrow
account, which shares were held in escrow for a period of one year to satisfy any indemnification claims by the Company or HBDC
Sub under the Atiam Merger Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Through October 1, 2007, SCA operated
through Atiam Technologies, L.P. Subsequent to October 1, 2007, SCA was merged into HBDC Sub, which was subsequently renamed Atiam
Technologies, LLC in 2007 and subsequently renamed InsPro Technologies, LLC in 2009 and operates as the Company&rsquo;s InsPro
LLC business. The results of InsPro LLC have been included in the Company&rsquo;s statement of operations as of October 1, 2007.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company accounted for the acquisition
of InsPro LLC using the purchase method of accounting. Our calculation for the consideration paid for InsPro LLC in connection
with the Bilenia Agreement and the Atiam Merger Agreement in the aggregate was $3,080,744 and consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 86%; font-size: 10pt; text-align: left">Cash payments to sellers</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,350,000</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Fair value of common stock issued to sellers</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,650,006</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Direct transaction fees and expenses</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">80,738</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">3,080,744</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We estimated the fair values of InsPro
LLC&rsquo;s assets acquired and liabilities assumed at the date of acquisition as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 65%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 86%; font-size: 10pt">Cash</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">608,534</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Accounts receivable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">643,017</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Prepaid expenses &amp; other assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">22,623</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Property and equipment, net</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">158,819</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Other Assets &ndash; Refunds</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3,401</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Intangible Assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,097,672</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Accounts payable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(34,278</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Accrued expenses</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(122,675</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Income Taxes Payable</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(157,288</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Deferred Revenue</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(120,000</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Long and short term capital lease obligations</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(19,081</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">3,080,744</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 3 &ndash; <U>ACQUISITION OF INSPRO
TECHNOLOGIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Intangible assets acquired from InsPro
LLC were assigned the following values: value of client contracts and relationships other than license with an assigned value
of $1,089,223 amortized straight line over five years; value of purchased software for sale and licensing value with an assigned
value of $644,449 amortized straight line over five years; and employment and non-compete agreements acquired with an assigned
value of $364,000 amortized straight line over three years. Intangible assets acquired from InsPro LLC had the following unamortized
values as of December 31, 2011; value of client contracts and relationships other than licensing of $163,383; and value of purchased
software for sale and licensing value of $96,667.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 4 - <U>PROPERTY AND EQUIPMENT</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Property and equipment consisted of the
following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: justify">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Useful<BR> Life<BR> (Years)</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">At&nbsp;December&nbsp;31,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">At&nbsp;December&nbsp;31,&nbsp;2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; text-align: justify">Computer equipment and software</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,354,525</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1,139,721</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify">Office equipment</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.6</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">204,442</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">194,360</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: justify">Office furniture and fixtures</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">6.7</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">189,857</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">191,363</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify; padding-bottom: 1pt">Leasehold improvements</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">9.8</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">34,034</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">34,034</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: justify">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,782,858</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,559,478</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: justify; padding-bottom: 1pt">Less accumulated depreciation</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(1,286,166</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(945,860</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: justify; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">496,692</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">613,618</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the years ended December 31, 2011
and 2010, depreciation expense was $340,306 and $395,365, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 5 &ndash; <U>INTANGIBLE ASSETS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Intangible assets consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Useful<BR> Life<BR> (Years)</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">At&nbsp;December&nbsp;31,&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">At&nbsp;December&nbsp;31,&nbsp;2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; text-align: left; padding-left: 0.75pt">InsPro Technologies intangible assets acquired</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">4.7</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">2,097,672</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">2,097,672</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">Software development costs for external
    marketing</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">174,296</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">174,296</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 0.75pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,271,968</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,271,968</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-left: 0.75pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; padding-left: 0.75pt">Less:&nbsp; accumulated amortization</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(2,011,918</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(1,665,183</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-left: 0.75pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt; padding-left: 0.75pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">260,050</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">606,785</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the years ended December 31, 2011
and 2010, amortization expense was $346,735 and $481,280 respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Amortization expense subsequent to the
period ended December 31, 2011 is $260,050 in 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES<BR>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS<BR>
December 31, 2011</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 6 &ndash; <U>SECURED NOTE FROM RELATED
PARTY</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 22, 2009, the Company and
its subsidiaries entered into a Loan Agreement (the &ldquo;Loan Agreement&rdquo;) and a $1,250,000 Secured Promissory Note (the
&ldquo;Note&rdquo;) with The Co-Investment Fund II, L.P. (&ldquo;Co-Investment&rdquo;). Co-Investment is the controlling stockholder
of the Company and a designee of Cross Atlantic Capital Partners, Inc., of which Frederick C. Tecce, one of our directors, is
a managing partner and of which Donald Caldwell, also one of our directors and Chairman of our board of directors, is Chairman
and Chief Executive Officer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the terms of the Loan Agreement
and the Note, Co-Investment extended the principal sum of $1,250,000 (the &ldquo;Loan&rdquo;) to the Company and its subsidiaries
(collectively, the &ldquo;Borrowers&rdquo;). Pursuant to the Note, the Borrowers agreed to pay to the order of Co-Investment,
the outstanding principal amount of the Note plus interest. &nbsp;Interest accrued on the unpaid principal balance of the Note
at an annual rate of 8%, except in the case of an event of default as set forth in the Loan Agreement, in which case the rate
of interest would increase to 11% until such event of default is cured. All principal and accrued interest was due and payable
on December 22, 2010. &nbsp;Co-Investment may have accelerated payment of the Loan in the event of default on the Loan as set
forth in Loan Agreement. &nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On June 15, 2010, the Company and Co-Investment
agreed to modify the terms of the Loan Agreement and the Note to: (i) increase the Loan from $1,250,000 to $2,250,000 on June
15, 2010 and (ii) allow Co-Investment to require the Company to repay to Co-Investment an amount not to exceed the loan balance
plus accrued interest in the form of the Company&rsquo;s equity securities at the conversion price and terms identical to the
price and terms of the Company&rsquo;s next issuance of common or preferred stock issued for cash consideration occurring after
June 15, 2010 (an &ldquo;Equity Issuance&rdquo;). An Equity Issuance occurred on September 30, 2010. The Company and Co-Investment
agreed in the event that the Company did not have a sufficient number of authorized shares of its equity securities to issue to
Co-Investment the Company and Co-Investment would jointly cooperate with one another in obtaining the necessary shareholder approval
to increase the number of authorized shares of the Company&rsquo;s equity securities and the effective date of the issuance and
repayment would be the date of the Company&rsquo;s shareholder approval.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 22, 2010, the Company entered
into and completed a note conversion (the &ldquo;Note Conversion&rdquo;) with Co-Investment, in which as consideration for the
repayment of the Note and accrued interest in the amount in aggregate of $2,392,136 the Company issued an aggregate of 797,378
shares of its Series B Convertible Preferred Stock, par value $0.001 per share (&ldquo;Series B Preferred Stock&rdquo;), warrants
to purchase 7,973,780 shares of its common stock, par value $0.001 (&ldquo;Common Stock&rdquo;) and $2.40 in cash, as full repayment
of all outstanding principal and accrued interest under the Loan Agreement and Note pursuant to the terms of a note conversion
agreement (the &ldquo;Conversion Agreement&rdquo;). See Note 8 &ndash; Shareholders&rsquo; Equity &ndash; Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 7 &ndash; <U>RELATED PARTY TRANSACTIONS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective with the March 26, 2010 expiration
of a subscription rights offering Co-Investment exercised 1,000 basic subscription rights for $1,000,000 and the Company issued
to Co-Investment 250,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share (&ldquo;Series A Preferred
Stock&rdquo;) and five-year warrants to purchase in aggregate 5,000,000 shares of Common Stock at an exercise price of $0.20 per
share. See Note 8 - Shareholders&rsquo; Equity&ndash; Series A Preferred Stock and Common Stock Warrants - 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 7 &ndash; <U>RELATED PARTY TRANSACTIONS
(continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 30, 2010, the Company entered
into and completed a private placement (the &ldquo;2010 Private Placement&rdquo;) with certain accredited investors, including
Independence Blue Cross, a Pennsylvania hospital plan corporation (&ldquo;Independence Blue Cross&rdquo;), for an aggregate of
1,800,001 shares of Series B Preferred Stock, and warrants (&ldquo;September 2010 Warrants&rdquo;) to purchase 18,000,010 shares
of our Common Stock, pursuant to the terms of a securities purchase agreement (the &ldquo;2010 Purchase Agreement&rdquo;). Independence
Blue Cross purchased an aggregate of 1,666,667 shares of Series B Preferred Stock, and September 2010 Warrants to purchase 14,666,670
shares of Common Stock. See Note 8 - Shareholders&rsquo; Equity&ndash; Series A Preferred Stock and Common Stock Warrants - 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the 2010 Private Placement,
Equity Issuance the Company agreed to amend the warrants issued to Co-Investment in connection with the 2009 Private Placement
and the warrants issued to Co-Investment and other investors in connection with the Company&rsquo;s March 2010 rights offering
(the &ldquo;Prior Warrants&rdquo;) such that the expiration dates of the anti-dilution provisions of the Prior Warrants were extended
to the expiration date of the anti-dilution provisions of the warrants issued in the 2010 Private Placement. See Note 8 - Shareholders&rsquo;
Equity &ndash; Common Stock Warrants - 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 22, 2010, as consideration
for the repayment of the Note and accrued interest in the amount in aggregate of $2,392,136 the Company issued to Co-Investment
an aggregate of 797,378 shares of its Series B Preferred Stock, warrants to purchase 7,973,780 shares of its Common Stock in accordance
with the Conversion Agreement and $2.40 cash. See Note 6 &ndash; Secured Note from Related Party. See Note 8 &ndash; Shareholders&rsquo;
Equity&ndash; Series B Preferred Stock and Common Stock Warrants - 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Common Stock</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective November 18, 2010, our shareholders
approved an amendment to our certificate of incorporation, as amended, to increase the number of authorized shares of Common Stock
from 200,000,000 shares to 300,000,000 shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Preferred Stock</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective November 18, 2010, our shareholders
approved an amendment to our certificate of incorporation, as amended, to increase the number of authorized shares of preferred
stock from 10,000,000 shares to 20,000,000 shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Series A Preferred Stock</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 14, 2009, the Company filed
a Certificate of Designation with the Secretary of State of the State of Delaware. The Certificate of Designation was approved
by the Company&rsquo;s Board of Directors on January 12, 2009 and became effective upon filing. The Certificate of Designation
provides for the terms of the Company&rsquo;s Series A Preferred Stock issued pursuant to the 2009 Purchase Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 15, 2009, the Company completed
the 2009 Private Placement with Co-Investment, for an aggregate of 1,000,000 shares of its Series A Preferred Stock, and warrants
to purchase 1,000,000 shares of its Series A Preferred Stock, pursuant to the terms of the 2009 Purchase Agreement. The gross
proceeds from the closing were $4,000,000 and the Company intends to use the net proceeds of the 2009 Private Placement for working
capital purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the 2009 Purchase Agreement,
the Company agreed to sell to Co-Investment 1,000,000 investment units (each, a &ldquo;2009 Unit&rdquo;) in the 2009 Private Placement
at a per 2009 Unit purchase price equal to $4.00. Each 2009 Unit sold in the 2009 Private Placement consisted of one share of
Series A Preferred Stock and a warrant to purchase one share of Series A Preferred Stock at an initial exercise price of $4.00
per share, subject to adjustment (the &ldquo;2009 Warrant&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Series A Preferred Stock is entitled
to vote as a single class with the holders of the Company&rsquo;s common 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 <I>pari</I> <I>passu</I> with the holders of common stock on an as-converted
basis. Each share of Series A Preferred Stock becomes convertible into 20 shares of common stock, subject to adjustment and at
the option of the holder of the Series A Preferred Stock, immediately after shareholder approval of the Charter Amendment (as
defined below). 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&rsquo;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&rsquo;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company was required, under the terms
of the 2009 Purchase Agreement, to file a proxy statement (the &ldquo;Proxy Statement&rdquo;) and hold a special meeting of the
Company&rsquo;s shareholders (the &ldquo;Special Meeting&rdquo;) within 75 days of the effective date of the 2009 Purchase Agreement
for the purpose of approving a certificate of amendment to the Company&rsquo;s certificate of incorporation to increase the total
number of the Company&rsquo;s authorized shares of common stock from 90,000,000 to 200,000,000 (the &ldquo;Charter Amendment&rdquo;).
Under the terms of the 2009 Purchase Agreement, Co-Investment agreed to vote all Preferred Shares and shares of common stock beneficially
owned by it in favor of the Charter Amendment at the Special Meeting. The Company filed a Proxy Statement and on March 25, 2009
held a Special Meeting of shareholders whereby shareholders voted and approved the Charter Amendment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company allocated the $4,000,000 proceeds
received from the 2009 Private Placement net of $55,617 of costs incurred to complete 2009 Private Placement to the Preferred
Shares and 2009 Warrants based on their relative fair values, which were determined to have a fair value in aggregate of $3,758,306.
The Company determined the 2009 Warrants are properly classified as an equity instrument. The Company recorded the value of the
Preferred Shares as $1,983,984 and the value of the 2009 Warrants as $1,960,399 in additional paid in capital. The Company determined
the fair value of the Preferred Shares to be $1,900,000 based on the closing price of the Company&rsquo;s common stock on January
15, 2009 and the 20 to 1 conversion ratio of the Preferred Shares into shares of common stock. The Company determined the fair
value of the 2009 Warrants to be $1,877,412 using a Black-Scholes option pricing model with the following assumptions: expected
volatility of 236%, a risk-free interest rate of 0.12%, an expected term of 5 years and 0% dividend yield.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 14, 2010 the Company filed
a prospectus for a rights offering on Form S-1/A, which the Commission declared effective on January 22, 2010, to distribute to
shareholders at no charge, one non-transferable subscription right for each 12,256 shares of our common stock and 613 shares of
our Series A Preferred Stock owned as of January 1, 2010, 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&rsquo; behalf, as a beneficial owner of
such shares. This rights offering was designed to give all of the holders of the Company&rsquo;s common stock the opportunity
to participate in an equity investment in the Company on the same economic terms as the Company&rsquo;s 2009 Private Placement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The basic subscription right entitled
the holder to purchase one unit (a &ldquo;Subscription Unit&rdquo;) at a subscription price of $1,000. A Subscription Unit consisted
of 250 shares of Series A Preferred Stock and a five-year warrant to purchase 5,000 shares of common stock at an exercise price
of $0.20 per share. In the event that a holder of subscription rights purchased all of the basic Subscription Units available
to the holder then pursuant to their basic subscription rights, 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective with the expiration of the subscription
rights, which occurred on March 26, 2010, holders of subscription rights exercised in aggregate 1,061 basic subscription rights
and 46 over-subscription rights for a total 1,107 Subscription Units. As a result of the exercise of 1,107 subscription rights
the Company received $1,107,000 in gross proceeds, and on March 26, 2010, issued in aggregate 276,750 shares of Series A Preferred
Stock and five-year warrants to purchase in aggregate 5,535,000 shares of common stock at an exercise price of $0.20 per share.
Effective with the expiration of the rights offering all unexercised subscription rights expired. The Series A Preferred Stock
issued in 2010 has the same terms as the Series A Preferred Stock issued in 2009.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company allocated $226,880 of the
$1,107,000 proceeds received as a result of the exercise of Subscription Units to the warrant liability using a Black-Scholes
option pricing model with the following assumptions: expected volatility of 345%, a risk-free interest rate of 0.14%, an expected
term of 5 years and 0% dividend yield. See Note 1 &ndash; Warrant Liability. The remaining $880,120 of the proceeds received was
allocated to the Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Series B Preferred Stock</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 30, 2010, the Company filed
a Certificate of Designation with the Secretary of State of the State of Delaware. The Certificate of Designation was approved
by the Company&rsquo;s Board of Directors on September 9, 2010 and became effective upon filing. The Certificate of Designation
provides for the terms of the Company&rsquo;s Series B Preferred Stock issued pursuant to the 2010 Purchase Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 30, 2010, the Company entered
into and completed the 2010 Private Placement with the participating investors, including Independence Blue Cross (the &ldquo;Investors&rdquo;),
for an aggregate of 1,800,001 shares of Series B Preferred Stock, and September 2010 Warrants to purchase 18,000,010 shares of
its Common Stock, pursuant to the terms of the 2010 Purchase Agreement. The gross proceeds from the closing were $5.4&nbsp;million
and the Company intends to use the net proceeds of the 2010 Private Placement for working capital purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the 2010 Purchase Agreement,
the Company agreed to sell to the Investors 1,800,001 investment units (each, a &ldquo;2010 Unit&rdquo;) in the 2010 Private Placement
at a per 2010 Unit purchase price equal to $3.00. Each 2010 Unit sold in the 2010 Private Placement consisted of one share of
Series B Preferred Stock and a September 2010 Warrant to purchase ten shares of Common Stock at an initial exercise price of $0.15
per share, subject to adjustment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Series B Preferred Stock is entitled
to vote as a single class with the holders of the Company&rsquo;s common and preferred stock, with each share of Series B Preferred
Stock having the right to 20 votes. Upon the liquidation, sale or merger of the Company, each share of 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, subject to certain customary adjustments, or (B) the amount such share of Series B Preferred Stock would receive if it
participated <I>pari</I> <I>passu</I> with the holders of common and preferred stock on an as-converted basis. Each share of Series
B Preferred Stock becomes convertible into 20 shares of common stock, subject to adjustment and at the option of the holder of
the Series B Preferred Stock. For so long as any shares of Series B Preferred Stock are outstanding, the vote or consent of the
holders of at least two-thirds of the Series B Preferred Stock is required to approve (Y) any amendment to the Company&rsquo;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&rsquo;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 in aggregate for all issued and outstanding Series
B Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Under the terms of the 2010 Purchase Agreement,
and subject to the approval of the Company&rsquo;s shareholders of the amendment to the Certificate of Incorporation of the Company
to increase the number of shares of authorized Common Stock of the Company, the Company sold an additional 200,000 Units to the
Investors on November 29, 2010, on the same terms and conditions as described in the 2010 Purchase Agreement (the &ldquo;Subsequent
Closing&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company agreed, pursuant to the terms
of the 2010 Purchase Agreement, that, except for the Follow-on Financing (as defined in the 2010 Purchase Agreement), for a period
of 90 days after the effective date (the &ldquo;Initial Standstill&rdquo;) of the 2010 Purchase Agreement, the Company would not,
subject to certain exceptions, offer, sell, grant any option to purchase, or otherwise dispose of any equity securities or equity
equivalent securities, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument
that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, capital stock and
other securities of the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company allocated $2,159,973 of the
$5,400,001 proceeds received as a result of the 2010 Purchase Agreement to the warrant liability using a Black-Scholes option
pricing model with the following assumptions: expected volatility of 392%, a risk-free interest rate of 0.19%, an expected term
of 5 years and 0% dividend yield. See Note 1 &ndash; Warrant Liability. The remaining $3,240,028 of the proceeds received was
allocated to the Series B Preferred Stock less $30,505 of legal expenses incurred as a result of the 2010 Purchase Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 29, 2010, the Company completed
the Subsequent Closing and issued 200,000 shares of Series B Preferred Stock and a warrant to purchase 2,000,000 shares of the
Company&rsquo;s Common Stock at an initial exercise price of $0.15 per share, subject to adjustment, to Independence Blue Cross.
The Company allocated $199,998 of the $600,000 proceeds received as a result of the Subsequent Closing to the warrant liability
using a Black-Scholes option pricing model with the following assumptions: expected volatility of 404%, a risk-free interest rate
of 0.18%, an expected term of 5 years and 0% dividend yield. See Note 1 &ndash; Warrant Liability. The remaining $400,002 of the
proceeds received was allocated to the Series B Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 22, 2010, the Company entered
into and completed the Note Conversion with Co-Investment, in which as consideration for the repayment of the Note and accrued
interest in the amount in aggregate of $2,392,136 the Company issued an aggregate of 797,378 shares of Series B Preferred Stock,
warrants to purchase 7,973,780 shares of its Common Stock and $2.40 in cash, as full repayment of all outstanding principal and
accrued interest under the Loan Agreement and Note pursuant to the terms of the Conversion Agreement. The Company allocated $558,165
of the $2,392,136 gross proceeds received as a result of the Note Conversion to the warrant liability using a Black-Scholes option
pricing model with the following assumptions: expected volatility of 476%, a risk-free interest rate of 0.18%, an expected term
of 5 years and 0% dividend yield. See Note 1 &ndash; Warrant Liability. The Company allocated the remaining $1,833,969 of the
gross proceeds received to the Series B Preferred Stock less $15,800 of legal expenses incurred as a result of the Note Conversion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 22, 2010, the Company filed
a Certificate of Amendment to the Certificate of Designation of Series B Convertible Preferred Stock (the &ldquo;Series B Certificate
of Amendment&rdquo;) with the Secretary of State of the State of Delaware. The Series B Certificate of Amendment was approved
by the Company&rsquo;s Board of Directors on December 20, 2010 and became effective upon filing. The Series B Certificate of Amendment
increases the number of authorized shares of Series B Preferred Stock from 2,250,000 to 5,000,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Stock Options</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>2010</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 25, 2010 the Company issued to
an executive of the Company a stock option to purchase a total of 250,000 shares of the Company&rsquo;s common stock, which vests
as follows: 50,000 shares of common stock on each of July 31, 2010, January 31, 2011, July 31, 2011, January 31, 2012 and July
31, 2012. This option has a five year term and an exercise price of $0.06, which is equal to closing price of one share of the
Company&rsquo;s common stock as quoted on the OTCBB on March 25, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On July 9, 2010 the Company issued to
five executives of the Company stock options in aggregate to purchase a total of 500,000 shares of the Company&rsquo;s common
stock, which vests as follows: 125,000 shares of common stock on each of January 9, 2011, July 9, 2011, January 9, 2012 and July
9, 2012. These options have a five year term and an exercise price of $0.065, which is equal to closing price of one share of
the Company&rsquo;s common stock as quoted on the OTCBB on July 9, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 18, 2010, the board of directors
of the Company adopted the Company's 2010 Equity Compensation Plan (&ldquo;the 2010 Plan&rdquo;), which plan was subject to shareholder
approval. An aggregate of 1,500,000 shares of the Company&rsquo;s common stock have been reserved for issuance under the 2010
Plan in addition to any authorized and unissued shares of common stock available for issuance under the 2008. The purpose of the
2010 Plan is to provide a comprehensive compensation program to attract and retain qualified individuals to serve as employees,
directors or key outside consultants. The Company is authorized to award cash fees and issue non-qualified stock options under
the 2010 Plan. The 2010 Plan is administered by the Company&rsquo;s board of directors or the compensation committee established
by the board.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 18, 2010 the Company issued
to Mr. Oakes a stock option grant under the 2010 Plan, subject to shareholder approval, to purchase a total of 1,500,000 shares
of the Company&rsquo;s common stock, which vests as follows: 375,000 shares of common stock on each of June 30, 2011, 2012, 2013
and 2014. This option grant has a five year term and an exercise price of $0.111, which is equal to closing price of one share
of the Company&rsquo;s common stock as quoted on the OTCBB on August 18, 2010. As of September 30, 2010 there were 1,500,000 options
granted under the 2010 Plan.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the year ended December 31, 2010,
850,000 options previously granted to Mr. Alvin Clemens, the former Co-Chairman of the Company&rsquo;s board, were forfeited as
a result of Mr. Clemens resignation from the board in accordance with the terms of the stock options. During the year ended December
31, 2010, 416,648 options previously granted to Mr. Charles Eissa, the former COO of the Company, were forfeited as a result of
Mr. Eissa&rsquo;s termination of employment in accordance with the terms of the stock option. Also during the year ended December
31, 2010, 70,000 options previously granted to other former employees were forfeited in accordance with the terms of the stock
options.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective November 18, 2010, our shareholders
approved the adoption of the 2010 Plan and the August 18, 2010 stock option grant to Mr. Oakes. Pursuant to the terms of the 2010
Plan, the 2008 Plan was merged with and into the 2010 Plan effective as of November 18, 2010. No additional grants will be made
thereafter under the 2008 Plan. Outstanding grants under the 2008 Plan will continue in effect according to their terms as in
effect before the plan merger and the common shares with respect to outstanding grants under the 2008 Plan will be issued or transferred
under the 2010 Plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>2011</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2011, 425,000 options previously
granted to Warren Musser, the former vice chairman of the Company&rsquo;s board of directors, expired in accordance with the terms
of the stock options. During 2011, 330,000 options previously granted to various current and former employees expired in accordance
with the terms of the stock options.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On June 20, 2011, the Company issued to
Mr. Michael Mullin, who is InsPro Technologies&rsquo; Chief Operating Officer, a stock option grant to purchase a total of 1,000,000
shares of the Company&rsquo;s common stock, which vests as follows: 200,000 shares of common stock on each of December 20, 2011
and June 20, 2012, and 300,000 shares of common stock on each of June 20, 2013 and June 20, 2014. This option has a five year
term and an exercise price of $0.10, which is equal to the closing price of one share of the Company&rsquo;s common stock as quoted
on the OTCBB on June 20, 2011. The fair value of the option granted to Mr. Mullin was estimated as of the date of grant using
the Black-Scholes option-pricing model based on the following assumptions: Expected volatility: 516%, risk-free interest rate:
0.03%, expected life in years: 5, and assumed dividend yield: 0%.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company recorded compensation expense
pertaining to employee stock options and restricted and unrestricted stock grants as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center">For year ended December 31,</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Salaries, commission and related taxes</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">94,302</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">38,229</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Loss from discontinued operations</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">12,300</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">94,302</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">50,529</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the Company's outstanding
stock options as of and for the years ended December 31, 2011 and 2010 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Number</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Weighted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Of Shares</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Average</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Weighted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Underlying</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Exercise</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Average</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Options</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Fair Value</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 58%; font-size: 10pt">Outstanding at December 31, 2009</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">5,676,648</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">1.11</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">0.63</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">For the year ended December 31, 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 0.25in">Granted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,250,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.10</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.10</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-left: 0.25in">Exercised</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt; padding-left: 0.25in">Forfeited</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(1,336,648</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1.31</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">0.30</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-left: 0.25in">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Outstanding at December 31, 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">6,590,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.41</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.43</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">For the year ended December 31, 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-left: 0.25in">Granted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,000,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.10</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.10</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 0.25in">Exercised</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt; padding-left: 0.25in">Expired</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(755,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1.80</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1.42</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-left: 0.25in">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Outstanding at December 31, 2011</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">6,835,000</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">0.47</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">0.32</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">Outstanding and exercisable at December 31, 2011</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">4,510,000</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">0.66</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">0.44</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The weighted average fair value of option
grants are estimated as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions for
options granted during the years ended December 31, 2011 and 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Year Ended<BR> December
    31, 2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">For the Year Ended<BR> December
    31, 2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Expected volatility</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">516</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">%</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">380</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Risk-free interest rate</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.03</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.19</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Expected life in years</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5.0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5.0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Assumed dividend yield</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0</TD><TD STYLE="font-size: 10pt; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following information applies to options
outstanding at December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="14" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Options Outstanding</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Options Exercisable</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Exercise<BR> Price</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Number of<BR> Shares<BR> Underlying<BR>
    Options</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Weighted<BR> Average<BR> Remaining<BR>
    Contractual<BR> Life</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Exercise<BR> Price</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Number<BR> Exercisable</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Exercise<BR> Price</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">0.060</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">405,000</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">2.8</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">0.060</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">305,000</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">0.060</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.065</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">500,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.5</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.065</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">200,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.065</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.100</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,955,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2.1</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.100</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,155,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.100</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.111</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,500,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.6</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.111</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">375,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.111</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1.000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,000,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.9</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1.000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,000,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1.000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">75,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.3</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">75,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.500</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.600</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">400,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.3</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.600</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">400,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">3.600</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">6,835,000</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">4,510,000</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2011, there were 30,000,000
shares of our common stock authorized to be issued under the 2010 Plan, of which 22,161,980 shares of our common stock remain
available for future stock option grants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The total intrinsic value of stock options
granted during 2011 and 2010 was $0 and $0, respectively.&nbsp; The total intrinsic value of stock options outstanding and exercisable
as of December 31, 2011 and December 31, 2010 was $0 and $0, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The value of equity compensation expense
not yet expensed pertaining to unvested equity compensation was $203,857 as of December 31, 2011, which will be recognized over
a weighted average 4 years in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Common Stock warrants</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>2010</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 26, 2010 the Company issued the
March 2010 Warrants to purchase in aggregate 5,535,000 shares of common stock at an exercise price of $0.20 per share for a period
of 5 years. The March 2010 Warrants also include full ratchet anti-dilution adjustment provisions for issuances of securities
below $0.20 per share of common stock during the first two years following the date of issuance of the March 2010 Warrants, subject
to customary exceptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 31, 2010, the full ratchet anti-dilution
adjustment provisions pertaining to warrants issued on March 31, 2008, expired.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 30, 2010, pursuant to the
2010 Purchase Agreement the Company issued the September 2010 Warrants to purchase in aggregate 18,000,010 shares of common stock
at an exercise price of $0.15 per share for a period of five years. The September 2010 Warrants also include full ratchet anti-dilution
adjustment provisions for issuances of securities below $0.15 per share of common stock during the first two years following the
date of issuance of the September 2010 Warrants, subject to customary exceptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Also in connection with the 2010 Private
Placement, the Company agreed to amend the Prior Warrants as a condition of Co-Investment&rsquo;s consent to modify the terms
of the Series A Preferred Stock. Pursuant to addendums and certificates of adjustment to the 2009 Warrants and addendums and certificates
of adjustment to the 2010 March Warrants, the expiration dates of the anti-dilution provisions of the Prior Warrants were extended
to the expiration date of the anti-dilution provisions of the September 2010 Warrants. In addition, pursuant to the terms of the
Prior Warrants, the exercise price of the Prior Warrants was reduced from $0.20 to $0.15 and the aggregate number of shares of
Common Stock issuable under the 2009 Warrants was increased by 6,666,667 from 20,000,000 to 26,666,667 and the aggregate number
of shares of Common Stock issuable under the March 2010 Warrants was increased by 1,845,000 from 5,535,000 to 7,380,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 29, 2010, the Company completed
the Subsequent Closing and issued a warrant to purchase 2,000,000 shares of the Company&rsquo;s Common Stock a t an exercise price
of $0.15 per share for a period of five years to Independence Blue Cross (the &ldquo;November 2010 Warrants&rdquo;). The November
2010 Warrants also include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per share
of common stock during the first two years following the date of issuance of the September 2010 Warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 22, 2010, the Company entered
into and completed the Note Conversion with Co-Investment and issued a warrant to purchase 7,973,780 shares of the Company&rsquo;s
Common Stock a t an exercise price of $0.15 per share for a period of five years (the &ldquo;December 2010 Warrants&rdquo;). The
December 2010 Warrants also include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per
share of common stock during the first two years following the date of issuance of the September 2010 Warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the year ended December 31, 2010,
warrants to purchase 350,000 shares of the Company&rsquo;s common stock at an exercise price of $2.80 per share and 75,000 shares
of the Company&rsquo;s common stock at an exercise price of $1.50 per share expired in accordance with the terms of the warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>2011</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 10, 2011, warrants to purchase
1,175,000 shares of the Company&rsquo;s common stock at an exercise price of $1.50 per share expired in accordance with the terms
of the warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the status of the Company's
outstanding stock warrants as of and for the years ended December 31, 2011 and 2010 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Weighted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Common</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Average</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Stock</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Exercise</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Warrants</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 72%; font-size: 10pt">Outstanding at December 31, 2009</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">51,566,887</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">0.38</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">For the year ended December 31, 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Granted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">33,508,790</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.16</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Adjustment to warrants issued in 2009 for Preferred Stock and 2010 Warrants</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">6,666,667</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Adjustment to warrants issued in 2010 for Preferred Stock and 2010 Warrants</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,845,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Exercised</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">Expired</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(425,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">2.57</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Outstanding at December 31, 2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">93,162,344</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.25</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">For the year ended December 31, 2011</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Granted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Exercised</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">Expired</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(1,175,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1.50</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Outstanding at December 31, 2011</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">91,987,344</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">0.24</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Exercisable at December 31, 2011</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">91,987,344</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">0.24</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following information applies to warrants
outstanding at December 31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Warrant<BR> Issue Date</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Warrant<BR> Exercise<BR> Price</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Warrant<BR> Expiration<BR> Date</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Weighted<BR> Average<BR> Remaining<BR>
    Life</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Anti-dilution<BR> Provision<BR> Expiration
    Date</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Outstanding<BR> Common<BR> Stock<BR>
    Warrants</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 15%; font-size: 10pt; text-align: right">3/30/2007</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">1.51</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 15%; font-size: 10pt; text-align: right">3/30/2012</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">0.2</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 15%; font-size: 10pt; text-align: right">expired</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">4,966,887</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: right">3/31/2008</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.20</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">3/31/2013</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1.2</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">expired</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">25,000,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: right">1/15/2009</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">1/14/2014</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2.0</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">9/29/2012</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">26,666,667</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: right">3/26/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">3/26/2015</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.2</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">9/29/2012</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">7,380,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: right">9/30/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">9/30/2015</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.8</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">9/29/2012</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">18,000,010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: right">11/29/2010</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">11/29/2015</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3.9</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right">9/29/2012</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">2,000,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 1pt">12/22/2010</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">0.15</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 1pt">12/22/2015</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.0</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 1pt">9/29/2012</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">7,973,780</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: center; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">91,987,344</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Outstanding warrants at December 31, 2011,
have a weighted average remaining contractual life of 2.4 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Upon the Company&rsquo;s adoption of EITF
No.&nbsp;07-05 on January&nbsp;1, 2009, the Company determined that the Company&rsquo;s warrants issued in 2007, 2008 and 2009
did not qualify for a scope exception under SFAS No.&nbsp;133 as they were determined to not be indexed to the Company&rsquo;s
stock as prescribed by EITF No.&nbsp;07-05.&nbsp; On January 1, 2009, the Company&rsquo;s warrants issued in 2007, 2008 and 2009
were reclassified from equity to warrant liability for their&nbsp;relative fair market values. See Note 1 - Warrant Liability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company determined the March 2010
Warrants, the September 2010 Warrants, the November 2010 Warrants and the December 2010 Warrants did not qualify for a scope exception
under SFAS No.&nbsp;133 as they were determined not to be indexed to the Company&rsquo;s stock as prescribed by EITF No.&nbsp;07-05.
See Note 1 - Warrant Liability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Preferred Stock warrants</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On August 18, 2010, the board of directors
of the Company granted a warrant to purchase 150,000 shares of Series A Preferred Stock at an exercise price equal to $4.00 per
share for a period of five years to Mr. Robert Oakes, who is InsPro LLC&rsquo;s President and CEO . The warrant is immediately
exercisable, non transferrable and expires on August 18, 2015. The Company estimated the fair value of the warrant to be $332,994
as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions: expected volatility 384%,
risk-free interest rate 0.19%, expected life in years 5, and assumed dividend yield 0%. The Company recorded the fair value of
the warrant as salaries, employee benefits and related taxes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 14, 2011, the board of directors
of the Company granted a warrant to purchase 150,000 shares of Series A Preferred Stock at an exercise price equal to $4.00 per
share to Anthony R. Verdi, the Company&rsquo;s Chief Executive Officer and Chief Financial Officer. The warrant is immediately
exercisable, non transferrable and expires on September 14, 2016. The Company estimated the fair value of the warrant to be $180,000
as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions: expected volatility:
566%, risk-free interest rate: 0.03%, expected life in years: 5, and assumed dividend yield: 0%. The Company recorded the fair
value of the warrant as salaries, employee benefits and related taxes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the status of the Company's
outstanding preferred stock warrants as of and for the year ended December 31, 2011 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Weighted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Preferred</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Average</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Stock</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Exercise</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Warrants</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">Outstanding
                                                                                     at December 31, 2009</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">For
                                                                                     the year ended December 31, 2010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="width: 66%; font-size: 10pt; text-align: left; vertical-align: middle">Granted</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; font-size: 10pt; text-align: right">150,000</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; font-size: 10pt; text-align: right">4.00</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">Exercised</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">Expired</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">Outstanding
                                                                                     at December 31, 2010</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">150,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">$</TD><TD STYLE="font-size: 10pt; text-align: right">4.00</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">For
                                                                                     the year ended December 31, 2011</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">Granted</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">150,000</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">4.00</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">Exercised</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">Expired</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">Outstanding
                                                                                     at December 31, 2011</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">300,000</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">4.00</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">Exercisable
                                                                                     at December 31, 2011</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">300,000</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">4.00</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Outstanding preferred stock warrants at December 31, 2011,
have a remaining contractual life of 4.2 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Registration and Participation Rights</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 30, 2007 and in connection with
2007 Private Placement, the Company and the participating investors entered into a Registration Rights Agreement (the &ldquo;2007
Registration Rights Agreement&rdquo;). Under the terms of the 2007 Registration Rights Agreement, the Company agreed to prepare
and file with the Commission, as soon as possible but in any event within 30 days following the later of (i) the date the Company
is required to file with the Commission its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, or (ii)
the date of the 2007 Registration Rights Agreement, a registration statement on Form SB-2 covering the resale of the shares and
the warrant shares. Subject to limited exceptions, the Company also agreed to use its reasonable best efforts to cause the registration
statement to be declared effective under the Securities Act as soon as practicable and agreed to use its reasonable best efforts
to keep the registration statement effective under the Securities Act until the date that is two years after the date that the
registration statement is declared effective by the Commission or such earlier date when all of the registrable securities covered
by the registration statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) promulgated under
the Securities Act. The 2007 Registration Rights Agreement also provides for payment of partial damages to the 2007 Private Placement
investors under certain circumstances relating to failure to file or obtain or maintain effectiveness of the registration statement,
subject to adjustment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the 2007 Private Placement,
the Company issued warrants to the placement agents (the &ldquo;Placement Agent Warrants&rdquo;). Under the terms of the 2007
Registration Rights Agreement, the holders of the Placement Agent Warrants have certain &ldquo;piggyback&rdquo; registration rights
for the shares of Common Stock underlying the Placement Agent Warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On June 1, 2007, the Commission declared
effective the Company&rsquo;s Registration Statement on Form SB-2 filed with the Commission on May 2, 2007, as amended.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the Bilenia Agreement,
the Company and CCCC entered into the Bilenia Registration Rights Agreement. In connection with the Atiam Merger Agreement, the
Company and Shareholders also entered into a Registration Rights Agreement. See Note 3 &ndash; InsPro Technologies Acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 22, 2008, the Commission declared
effective the Company&rsquo;s Registration Statement on Form SB-2 filed with the Commission on February 1, 2008 as amended.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the signing of the
2008 Purchase Agreement, the Company and the participating investors also entered into a Registration Rights Agreement (the &ldquo;2008
Registration Rights Agreement&rdquo;). Under the terms of the 2008 Registration Rights Agreement, the Company agreed to prepare
and file with the Commission, as soon as possible but in any event within 30 days following the later of (i) the date the Company
is required to file with the Commission its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007, or (ii)
the date of the Registration Rights Agreement, a registration statement on Form S-1 covering the resale of the shares and the
warrant shares. Subject to limited exceptions, the Company also agreed to use its reasonable best efforts to cause the registration
statement to be declared effective under the Securities Act as soon as practicable but, in any event, no later than 90 days following
the date of the 2008 Registration Rights Agreement (or 150 days following the date of the 2008 Registration Rights Agreement in
the event the registration statement is subject to review by the Commission), and agreed to use its reasonable best efforts to
keep the registration statement effective under the Securities Act until the date that all of the registrable securities covered
by the registration statement have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i)) promulgated
under the Securities Act. The 2008 Registration Rights Agreement also provides for payment of partial damages to the investors
under certain circumstances relating to failure to file or obtain or maintain effectiveness of the registration statement, subject
to adjustment.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the signing of the
2009 Purchase Agreement, the Company and the Investor also entered into a Registration Rights Agreement (the &ldquo;2009 Registration
Rights Agreement&rdquo;). Under the terms of the 2009 Registration Rights Agreement, the Company agreed to prepare and file with
the Commission, within 30&nbsp;days following the receipt of a demand notice of a holder of registrable securities, a registration
statement on Form S-1 covering the resale of the shares and the warrant shares. Subject to limited exceptions, the Company also
agreed to use its reasonable best efforts to cause the registration statement to be declared effective under the Securities Act,
as soon as practicable but, in any event, no later than 60&nbsp;days following the date of the 2009 Registration Rights Agreement
(or 120&nbsp;days following the date of the 2009 Registration Rights Agreement in the event the registration statement is subject
to review by the Commission), and agreed to use its reasonable best efforts to keep the registration statement effective under
the Securities Act until the date that all of the registrable securities covered by the registration statement have been sold
or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In addition, if the
Company proposes to register any of its securities under the Securities Act in connection with the offering of such securities
for cash, the Company shall, at such time, promptly give each holder of registrable securities notice of such intent, and such
holders shall have the option to register their registrable securities on such additional registration statement. The 2009 Registration
Rights Agreement also provides for payment of partial damages to the investor under certain circumstances relating to failure
to file or obtain or maintain effectiveness of the Registration Statement, subject to adjustment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The 2009 Purchase Agreement provides for
a customary participation right for Co-Investment, subject to certain exceptions and limitations, which grants Co-Investment the
right to participate in any future capital raising financings of the Company occurring prior to January 14, 2011. Co-Investment
may participate in such financings at a level based on Co-Investment&rsquo;s ownership percentage of the Company on a fully-diluted
basis prior to such financing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the signing of the
2010 Purchase Agreement, the Company and the participating investors also entered into a Registration Rights Agreement (the &ldquo;2010
Registration Rights Agreement&rdquo;). Under the terms of the 2010 Registration Rights Agreement, the Company agreed to prepare
and file with the Commission, within 30&nbsp;days following the receipt of a demand notice of a holder of registrable securities,
a registration statement on Form S-1 covering the resale of the shares and the warrant shares. Subject to limited exceptions,
the Company also agreed to use its reasonable best efforts to cause the registration statement to be declared effective under
the Securities Act, as soon as practical but, in any event, no later than 60&nbsp;days following the date of the 2010 Registration
Rights Agreement (or 120&nbsp;days following the date of the 2010 Registration Rights Agreement in the event the registration
statement is subject to review by the Commission), and agreed to use its reasonable best efforts to keep the registration statement
effective under the Securities Act until the date that all of the registrable securities covered by the registration statement
have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In
addition, if the Company proposes to register any of its securities under the Securities Act in connection with the offering of
such securities for cash, the Company shall, at such time, promptly give each holder of registrable securities notice of such
intent, and such holders shall have the option to register their registrable securities on such additional registration statement.
The 2010 Registration Rights Agreement also provides for the cash payment of partial damages to the investors under certain circumstances
relating to failure to file or obtain or maintain effectiveness of the registration statement, subject to adjustment. As of December
31, 2010 the Company has not received a demand notice in connection with the 2010 Registration Rights Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The 2010 Purchase Agreement provides for
a customary participation right for the investors, subject to certain exceptions and limitations, which grants the investors the
right to participate in any future capital raising financings of the Company occurring prior to September 30, 2012. The investors
may participate in such financings at a level based on each investor&rsquo;s ownership percentage of the Company on a fully-diluted
basis prior to such financing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the signing of the
Conversion Agreement, the Company and Co-Investment also entered into a Registration Rights Agreement (the &ldquo;December 2010
Registration Rights Agreement&rdquo;). Under the terms of the December 2010 Registration Rights Agreement, the Company agreed
to prepare and file with the Commission, within 30&nbsp;days following the receipt of a demand notice of a holder of registrable
securities, a registration statement covering the resale of registrable securities. Subject to limited exceptions, the Company
also agreed to use its reasonable best efforts to cause the registration statement to be declared effective under Securities Act
as soon as practicable but, in any event, no later than 60&nbsp;days following the date of the filing of the registration statement
(or 120&nbsp;days following the date of the filing of the registration statement in the event the registration statement is subject
to review by the Commission), and agreed to use its reasonable best efforts to keep the registration statement effective under
the Securities Act until the date that all of the registrable securities covered by the registration statement have been sold
or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In addition, if the
Company proposes to register any of its securities under the Securities Act in connection with the offering of such securities
for cash, the Company shall, at such time, promptly give each holder of registrable securities notice of such intent, and such
holders shall have the option to register their registrable securities on such additional registration statement. The December
2010 Registration Rights Agreement also provides for payment of partial damages to Co-Investment under certain circumstances relating
to failure to file or obtain or maintain effectiveness of the registration statement, subject to adjustment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Conversion Agreement also provides
for a customary participation right for Co-Investment, subject to certain exceptions and limitations, which grants Co-Investment
the right to participate in any future capital raising financings of the Company occurring prior to September 30, 2012. Co-Investment
may participate in such financings at a level based on Co-Investment&rsquo;s ownership percentage of the Company on a fully-diluted
basis prior to such financing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 9 &ndash; <U>CAPITAL LEASE OBLIGATIONS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s InsPro LLC subsidiary
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 the lease agreement for one dollar. The underlying assets and related depreciation were included in
the appropriate fixed asset category, and related depreciation account.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Property and equipment includes the following
amounts for leases that have been capitalized as of December 31, 2011 and 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">Useful Life (Years)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">December 31, 2011</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">December 31, 2010</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%; font-size: 10pt; text-align: left">Computer equipment and software</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">3</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">654,690</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">595,898</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Phone System</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">3</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">15,011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">15,011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">669,701</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">610,909</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Less accumulated depreciation</TD><TD STYLE="font-size: 10pt; color: red; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: red; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: red; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; color: red; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(555,141</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(413,837</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; color: red; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: red; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: red; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; color: red; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">114,560</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">197,072</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 9 &ndash; <U>CAPITAL LEASE OBLIGATIONS (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Future minimum payments required under capital leases at December
31, 2011 are as follows:</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 65%; font-size: 10pt; text-align: left; vertical-align: middle; text-indent: 0.12in">2012</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 29%; font-size: 10pt; text-align: right">119,229</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle; text-indent: 0.12in">2013</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">58,818</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle; text-indent: 0.12in">2014</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">50,372</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle; text-indent: 0.12in">2015</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">12,815</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle; text-indent: 0.12in">Total
                                                             future payments</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">241,234</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle; text-indent: 0.12in">Less
                                                             amount representing interest</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">17,419</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle; text-indent: 0.12in">Present
                                                             value of future minimum payments</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">223,815</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle; text-indent: 0.12in">Less
                                                             current portion</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">109,872</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; vertical-align: middle; text-indent: 0.12in">Long-term
                                                             portion</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">113,943</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 10 &ndash; <U>DEFINED CONTRIBUTION
401(k) PLAN</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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. The 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&rsquo;s contribution up to 4% of the employee&rsquo;s contribution (the &ldquo;Contribution&rdquo;).
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 $46,403 and $40,696 for the years ended December 31, 2011 and 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 11 &ndash; <U>RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Employment and Separation Agreements</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 31, 2008, Anthony R. Verdi, our
Chief Financial Officer, was also appointed to the position of Chief Operating Officer, effective April 8, 2008. Mr. Verdi shall
have the authority, as our Chief Operating Officer, to lead the Company as the principal executive officer in the absence of a
Chief Executive Officer and Mr. Verdi shall have such authority until we appoint a new Chief Executive Officer or until such time
as our board of directors determines otherwise. Mr. Verdi was appointed to the board on June 20, 2008, and was appointed our Principal
Executive Officer on May 18, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Mr. Verdi&rsquo;s amended and restated
employment agreement, as amended on March 31, 2008, provides for an initial term of one year with automatic successive one-year
renewals unless we or Mr. Verdi gives the other party 60 days&rsquo; written notice prior to the end of the then current term.
He is entitled to receive such employee benefits and bonus compensation as a majority of our board of directors may determine
from time to time. Mr. Verdi&rsquo;s base salary is $250,000 per year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 11 &ndash; <U>RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If we terminate Mr. Verdi&rsquo;s employment
for cause or Mr. Verdi terminates his employment agreement without good reason, Mr. Verdi will be entitled to receive (i) all
accrued and unpaid salary and vacation pay through the date of termination and (ii) continued participation for one month in our
benefit plans. Otherwise if we terminate Mr. Verdi&rsquo;s employment or Mr. Verdi terminates his employment agreement for good
reason including his permanent disability he will be entitled to receive 18 months&rsquo; base salary at the then current rate,
payable in accordance with our usual practices, continued participation for 18 months in our benefit plans and payment, within
a commercially reasonable time and on a prorated basis, of any bonus or other payments earned in connection with our bonus plan
existing at the time of termination. In addition, if Mr. Verdi&rsquo;s employment is terminated in accordance with the foregoing
sentence within two months prior to, or 24 months following, a change in control (as described in the employment agreement), Mr.
Verdi will be entitled to receive 18 months&rsquo; base salary at the then current rate upon the date of termination, regardless
of our usual practices, and all stock options held by Mr. Verdi at the date of termination will immediately become 100% vested
and all restrictions on such options will lapse.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If Mr. Verdi&rsquo;s employment is terminated
due to a permanent disability we may credit any such amounts against any proceeds paid to Mr. Verdi with respect to any disability
policy maintained and paid for by us for Mr. Verdi&rsquo;s benefit. If Mr. Verdi dies during the term of his employment agreement,
the employment agreement will automatically terminate and Mr. Verdi&rsquo;s estate or beneficiaries will be entitled to receive
(i) three months&rsquo; base salary at the then current rate, payable in a lump sum and (ii) continued participation for one year
in our benefit plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the InsPro LLC acquisition,
InsPro LLC entered into three-year employment agreement with Mr. Oakes, effective October 1, 2007. On July 9, 2010, the Company
and Mr. Oakes entered into an amended and restated written employment agreement. Pursuant to Mr. Oakes employment agreement, his
annual base salary is $250,000 per year through September 30, 2011. Pursuant to his employment agreement on April 7, 2011, Mr.
Oakes received an increase in his base compensation to $300,000 retroactive to July 1, 2010, upon InsPro Technologies, LLC achievement
of one calendar quarter of positive operating cash flow, which occurred during the calendar quarter ended March 31, 2011. Mr.
Oakes is entitled to bonus compensation equal to 100% of the InsPro LLC&rsquo;s net income up to a maximum of $100,000 in 2010
and $100,000 in 2011. Mr. Oakes is entitled to such fringe benefits as are available to other executives of InsPro Technologies
Corporation. Mr. Oakes employment agreement shall be automatically extended for an additional one year term on March 25, 2011
and annually thereafter unless either party provides written notification to the other party of non-renewal no later than 60 days
prior to the termination date of the agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the event of Mr. Oakes&rsquo;s termination
without cause or for good reason, he or his estate would receive his then current base annual salary, plus unpaid accrued employee
benefits, which is primarily accrued vacation, plus the continuation of his employee benefits for a period of 12 months, less
all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued
employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to a written employment agreement
effective June 20, 2011, Mr.&nbsp;Michael Mullin serves as our Chief Operating Officer of InsPro LLC. Pursuant to his employment
agreement his annual base salary is $220,000 per year through June 20, 2012. Mr. Mullin is entitled to bonus compensation equal
to 100% of the InsPro LLC&rsquo;s positive cash flow up to a maximum of $12,500 per calendar quarter. He is entitled to receive
such employee benefits and bonus compensation as provided to executives of the Company. Mr.&nbsp;Mullin&rsquo;s employment agreement
may be terminated upon 60 days written notice and will otherwise automatically renew on June 20, 2012, for a one year term.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 11 &ndash; <U>RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company may terminate Mr. Mullin&rsquo;s
employment agreement without cause at any time with 30 days prior written notice. In the event of Mr. Mullin&rsquo;s termination
without cause or for good reason, he or his estate would receive his then current base annual salary for a period of six months,
plus unpaid accrued employee benefits, which is primarily accrued vacation, less all applicable taxes. In the event of his voluntary
termination, death or disability, he or his estate would receive unpaid accrued employee benefits, less all applicable taxes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During 2011 the Company renewed the employment
agreements with four executives each for a one year term. These employment agreements provide that these four key employees will
be compensated at an aggregate annual base salary of $701,000 with bonus compensation at the discretion of the Company&rsquo;s
board. These agreements may be terminated by the Company for &ldquo;cause&rdquo; (as such term is defined in the agreements) and
without &ldquo;cause&rdquo; upon 30 days notice. These agreements may be terminated by the Company without &ldquo;cause&rdquo;,
in which case the terminated employee will be entitled to their base salary for a period of six months. These agreements also
contain non-competition and non-solicitation provisions for the duration of the agreements plus a period of six months after termination
of employment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Restricted Cash and Operating Leases</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 17, 2006, the Company entered
into a lease agreement with FG2200, LLC, a Florida limited liability company, for approximately 50,000 square feet of office space
at 2200 S.W. 10th Street, Deerfield Beach, Florida (the &quot;Lease&quot;). The Company utilized this office as the principal
office for its former Agency Business. The term of the Lease commenced on March 15, 2006 and terminates on February 28, 2011.
On June 11, 2010, the Company exercised its one time option to cancel the Lease effective March 14, 2011, and paid $783,849 to
FG2200, LLC on June 14, 2010. The monthly rent increased every 12 months, starting at $62,500 plus certain building expenses incurred
by the landlord and ending at approximately $ 70,344 plus certain building expenses incurred by the landlord. In connection with
the Lease, the Company provided a $1,000,000 letter of credit to the landlord as a security deposit for the Company's obligations
under the Lease.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 4, 2011, the Company and FG2200,
LLC, agreed to amend the Lease whereby the Company paid to FG2200, LLC $16,300 as consideration to shorten the expiration of the
Lease to February 28, 2011, and to amend the security deposit provisions of the Lease. The amendment amended the security deposit
whereby the Company&rsquo;s existing $1,000,000 letter of credit, which served as the security deposit for the Lease, expired
on January 14, 2011, and was replaced by a $160,300 cash payment from the Company to FG2200, LLC, which consisted of $16,300 consideration
for amending the Lease and a $150,000 security deposit. The security deposit was returned to the Company by FG2200, LLC in 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 7, 2006, the Company entered
into a sublease for approximately 13,773 square feet of office space located on the 7th floor at 1120 Avenue of the Americas,
New York, New York (&ldquo;Sublease Agreement&rdquo;). The Company utilized this office as a sales office for its former Agency
Business. The Sublease Agreement commenced on March 2006, and terminated on December 31, 2010. The monthly rent increased every
twelve months, starting at approximately $303,000 per annum plus a proportionate share of landlord&rsquo;s building expenses and
ended at approximately $341,000 per annum plus a proportionate share of landlord&rsquo;s building expenses. In connection with
the Sublease Agreement, the Company provided a $151,503 letter of credit to the landlord as a security deposit for the Company&rsquo;s
obligations under the sublease.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">All amounts pertaining to the Company&rsquo;s
former Florida and New York offices are included in discontinued operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 11 &ndash; <U>RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On July 7, 2006, the Company entered into
a lease agreement with Radnor Properties-SDC, L.P. (the &ldquo;Landlord&rdquo;) 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&rsquo;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<FONT STYLE="font-size: 10pt"><SUP>th
</SUP></FONT>month following the commencement of the lease term. The annual rent increases every 12&nbsp;months, starting at approximately
$161,592 plus a proportionate share of landlord&rsquo;s building expenses after the second month and ending at approximately $258,378
plus a proportionate share of landlord&rsquo;s building expenses. Under the terms of the lease agreement, rent is 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 the amount of $117,145 as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company paid to the Landlord a security
deposit of $110,000 under the lease (the &ldquo;Security Deposit&rdquo;) during the third quarter of 2006, which is accounted
for as a deposit in other assets. The Company will not earn interest on the Security Deposit. The Security Deposit will decrease
and the Landlord will return to the Company $10,000 on the third anniversary of the commencement date of the lease and on each
anniversary thereafter until the required Security Deposit has been reduced to $20,000. The Security Deposit will be returned
to the Company 30 days after the end of the lease provided the Company has complied with all provisions of the lease. The balance
of the Security Deposit is $80,000 as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The letters of credit pertaining to the
lease for our Florida office and our former New York office were collateralized in the form of interest bearing bank deposits.
These interest bearing bank deposits were on deposit with the issuer of the letters of credit and were classified as restricted
cash on the Company&rsquo;s balance sheet, which as of December 31, 2010 had balances of $1,152,573. The terms of the interest
bearing bank accounts prohibited the Company from withdrawing the principal for the life of the letters of credit. On January
14, 2011, the Company&rsquo;s $1,000,000 letter of credit was terminated by the issuing Bank at the request of the Company and
the restrictions on the restricted cash, which served as collateral and was included in restricted cash, were eliminated on that
date. On February 5, 2011, the Company&rsquo;s $151,503 letter of credit was terminated by the issuing Bank at the request of
the Company and the restrictions on the restricted cash, which served as collateral and was included in restricted cash, were
eliminated on that date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 14, 2007, InsPro LLC entered
into a lease agreement with BPG Officer VI Baldwin Tower L.P. (&ldquo;BPG&rdquo;) for approximately 5,524 square feet of office
space at Baldwin Towers in Eddystone, Pennsylvania. On March 26, 2008, and again on December 2, 2008, the Company and BPG agreed
to amend the lease to increase the leased office space by 1,301 and 6,810 square feet, respectively. The term of the lease commenced
on October 1, 2007 will expire on January 31, 2013. The annual rent increases every 12&nbsp;months, starting at approximately
$102,194 plus a proportionate share of landlord&rsquo;s building expenses and ending at approximately $286,335 plus a proportionate
share of landlord&rsquo;s building expenses. Under the terms of the lease agreement, rent was waived for the first, second, tenth
and twenty-fifth months of the lease term. The Company recorded a liability for deferred rent in the amount of $13,450 as of December
31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company leases certain real and personal
property under non-cancelable operating leases. Rent expense was $660,429 and $713,440 for the years ended December 31, 2011 and
2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 11 &ndash; <U>RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Future minimum payments required under
operating leases, severance and employment agreements and service agreements at December 31, 2011 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 65%; font-size: 10pt; text-align: left">2012</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 29%; font-size: 10pt; text-align: right">661,086</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">2013</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">277,203</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">2014</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">255,843</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">2015</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">257,451</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">2016</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">261,156</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">thereafter</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">65,521</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">Total</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">1,778,260</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 12 - <U>INCOME TAXES</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has net operating loss carry
forwards for federal income tax purposes of approximately $37,600,000 at December 31, 2011, the unused portion of which, if any,
expires in years 2025 through 2031. The Company accounts for income taxes under Accounting Standards Codification 740, Income
Taxes &ldquo;ASC 740&rdquo;. 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 &ldquo;IRC 382&rdquo; 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% change in ownership). The issuance of the Company&rsquo;s Series A convertible preferred stock on January 15, 2009
resulted in a change of control as defined under IRC 382.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The table below summarizes the differences
between the Company&rsquo;s effective tax rate and the statutory federal rate as follows for the periods ended December 31, 2011
and 2010:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Computed "expected" expense (benefit)</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">171,168</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">(874,346</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">State tax expense (benefit), net of federal effect</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">14,672</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(74,944</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Amortization/impairment of acquisition related assets</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">41,257</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">182,924</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Stock based compensation</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">104,235</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">145,739</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Gain on change in fair value of warrants</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(895,323</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">(431,903</TD><TD STYLE="font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left">Other permanent differences</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">13,407</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">6,140</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Increase in valuation allowance</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">550,584</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">1,046,390</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 12 - <U>INCOME TAXES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 years ended December 31, 2011 and 2010 were as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Deferred tax assets:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left; text-indent: 10pt">Net operating loss carry forward</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">14,288,302</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">13,727,271</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 10pt">Compensation expense</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">23,569</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">29,142</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">All Miscellaneous Other</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">45,464</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">98,633</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 20pt">Total deferred tax asset</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">14,357,335</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">13,855,046</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left">Deferred tax liabilities:</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt; text-indent: 10pt">Depreciation</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(19,854</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(68,149</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 20pt">Net deferred tax asset</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">14,337,481</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">13,786,897</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Less: valuation allowance</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(14,337,481</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">(13,786,897</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company believes they will be able
to utilize deferred tax assets equal to the total deferred tax liabilities. 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 was increased by $550,584 from the prior year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 13 &ndash; <U>SUBSEQUENT EVENTS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Management has evaluated the effects of
all events subsequent to December 31, 2011 through the date which the financial statements were available to be issued and has
concluded that all events requiring adjustment to or disclosure in the financial statements have been made.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Expiration of Warrants</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 30, 2012, warrants to purchase
4,966,887 shares of the Company&rsquo;s Common Stock at an exercise price of $1.51 per share expired in accordance with the terms
of the warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CONSOLIDATED BALANCE SHEETS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">September 30, 2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">December 31, 2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">(Unaudited)</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">(1)</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center">ASSETS</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">CURRENT ASSETS:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; padding-left: 9pt">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2,091,032</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">3,702,053</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Accounts receivable, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,444,375</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,506,234</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Tax receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">766</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">766</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Prepaid expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">285,143</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">116,649</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Other current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">396</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,139</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Assets of discontinued operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">87,817</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">104,002</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 27pt">Total current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,909,529</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,431,843</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Property and equipment, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,501,835</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">496,692</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Intangibles, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">260,050</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Other assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">80,608</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">80,608</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 27pt">Total assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">6,491,972</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">6,269,193</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center">LIABILITIES AND SHAREHOLDERS' EQUITY</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">CURRENT LIABILITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Note payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">66,686</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8,586</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,906,096</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">644,563</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Accrued expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">712,777</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">521,383</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Current portion of capital lease obligations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">74,319</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">109,872</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Deferred revenue</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,672,039</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">622,500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 27pt">Total current liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,431,917</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,906,904</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">LONG TERM LIABILITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 27pt">Warrant liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,674,226</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 27pt">Capital lease obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">95,776</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">113,943</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 27pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 27pt">Total long term liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">95,776</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,788,169</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">SHAREHOLDERS' EQUITY:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">Preferred stock ($.001 par value; 20,000,000 shares authorized)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Series A convertible preferred stock; 3,437,500 shares
    authorized, 1,276,750 shares issued and outstanding (liquidation value $12,767,500)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,864,104</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,864,104</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Series B convertible preferred stock; 5,000,000 shares
    authorized, 2,797,379 shares issued and outstanding (liquidation value $8,392,137)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,427,604</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,427,604</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Common stock ($.001 par value; 300,000,000 shares
    authorized, 41,543,655 shares issued and outstanding)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">41,544</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">41,543</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Additional paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">43,293,255</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">37,038,318</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Accumulated deficit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(49,662,228</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(42,797,449</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 27pt">Total shareholders' equity</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,964,279</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,574,120</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 27pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 27pt">Total liabilities and shareholders' equity</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">6,491,972</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">6,269,193</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1) Derived from audited financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">See accompanying notes to unaudited consolidated
financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></P>

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<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CONSOLIDATED STATEMENTS OF OPERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">For the Three
    Months Ended September 30,</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">For the Nine
    Months Ended September 30,</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">2012</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">2012</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">(Unaudited)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">(Unaudited)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">(Unaudited)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">(Unaudited)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%"><FONT STYLE="font-size: 8pt">Revenues</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 8pt">3,372,990</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 8pt">1,699,802</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 8pt">8,835,150</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 8pt">5,636,023</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">Cost of revenues</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">3,237,929</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">1,587,656</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">7,844,648</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">5,035,330</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">Gross profit</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">135,061</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">112,146</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">990,502</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">600,693</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Selling, general and administrative expenses:</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Salaries, employee benefits and related taxes</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">580,579</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">765,496</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,735,783</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">2,053,281</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Advertising and other marketing</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">84,802</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">27,199</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">145,119</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">81,243</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Depreciation and amortization</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">255,316</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">166,521</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">717,072</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">521,309</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Rent, utilities, telephone and communications</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">99,652</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">93,526</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">281,353</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">282,363</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Professional fees</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">176,905</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">99,199</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">385,407</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">307,856</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Other general and administrative</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">178,323</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">141,432</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">425,264</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">419,575</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">1,375,577</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">1,293,373</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">3,689,998</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">3,665,627</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">Loss from operations</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(1,240,516</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(1,181,227</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(2,699,496</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(3,064,934</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Gain from discontinued operations</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">138,818</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">198,529</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">409,094</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">638,034</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Other income (expense):</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Gain (loss) on the change of the fair value of
    warrant liability</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">103</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(4,508,078</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">929,671</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Interest income</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">419</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">5,087</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,008</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">19,483</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Interest expense</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(53,300</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(5,301</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(70,307</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(18,802</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">Total other income (expense)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(52,881</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(111</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(4,574,377</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">930,352</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">Net loss</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(1,154,579</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(982,809</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(6,864,779</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(1,496,548</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Net income (loss) per common share - basic and diluted:</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Income (loss) from operations</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(0.03</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(0.03</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(0.18</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(0.06</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Gain from discontinued operations</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">0.00</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">0.01</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">0.01</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">0.02</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt"><FONT STYLE="font-size: 8pt">Net income (loss) per
    common share</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(0.03</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(0.02</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(0.17</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(0.04</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">Weighted average common shares outstanding
    - basic and diluted</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">41,543,655</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">41,543,655</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">41,543,655</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">41,543,655</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">See accompanying notes to unaudited consolidated
financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"></P>

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<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">For the Nine Months Ended September 30</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">(Unaudited)</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">(Unaudited)</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Cash Flows From Operating Activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; text-align: left; padding-left: 9pt">Net loss</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(6,864,779</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(1,496,548</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Adjustments to reconcile net loss to net cash used in operating activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Depreciation and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">717,072</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">521,309</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in">Stock-based compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">72,632</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">250,354</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">(Gain) loss on change of fair value of warrant liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,508,078</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(929,671</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Changes in assets and liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accounts receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(938,141</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(261,290</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Tax receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,840</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Prepaid expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(168,494</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(10,518</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Other current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,743</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(151</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Other assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,950</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">738,392</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(348,106</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accrued expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">191,394</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">118,309</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Deferred revenue</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,049,539</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">531,537</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Assets of discontinued operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">16,185</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(84,197</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 27pt">Net cash used in operating activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(676,379</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,704,182</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Cash Flows From Investing Activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Purchase of property and equipment</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(939,022</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(98,235</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 27pt">Net cash used in investing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(939,022</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(98,235</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Cash Flows From Financing Activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Gross proceeds from note payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">118,206</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">37,540</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Payments on note payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(60,106</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(33,650</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Fees paid in connection with secured note from related party</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(8,370</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Gross proceeds from capital leases</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,442</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Payments on capital leases</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(81,162</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(117,535</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Restricted cash in connection with letters of credit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,152,573</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 27pt">Net cash provided by financing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,380</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,030,558</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 27pt">Net (decrease) in cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,611,021</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(771,859</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Cash - beginning of the period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,702,053</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,429,026</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Cash - end of the period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,091,032</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,657,167</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Supplemental Disclosures of Cash Flow Information</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Cash payments for interest</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">21,604</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">18,802</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Non cash financing activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Accrued Interest on acounts payable</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">48,703</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">See accompanying notes to unaudited consolidated
financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Basis of presentation</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(&ldquo;US GAAP&rdquo;) 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, 2011 and notes thereto and other pertinent
information contained in the Annual Report on Form 10-K of InsPro Technologies Corporation (the &ldquo;Company&rdquo;, &ldquo;we&rdquo;,
&ldquo;us&rdquo; or &ldquo;our&rdquo;) as filed with the Securities and Exchange Commission (the &ldquo;Commission&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The consolidated financial statements
of the Company include the Company and its subsidiaries. All material inter-company balances and transactions have been eliminated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For purposes of comparability<FONT STYLE="color: black">,
certain prior period amounts have been reclassified to conform to the 2012 presentation.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The results of operations for the nine
months ended September 30, 2012 are not necessarily indicative of the results for the full fiscal year ending December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Organization</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro Technologies, LLC, our wholly owned
subsidiary (&ldquo;InsPro Technologies&rdquo;), is a provider of comprehensive, web-based insurance administration software applications.
InsPro Technologies&rsquo; flagship software product is InsPro Enterprise, which was introduced in 2004. <FONT STYLE="color: black">InsPro
Technologies offers InsPro Enterprise on a licensed and an Application Service Provider (&ldquo;ASP&rdquo;) 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. </FONT>InsPro Technologies&rsquo; clients include insurance carriers
and third party administrators. InsPro Technologies realizes revenue from the sale of software licenses, application service provider
fees, software maintenance fees and professional services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Use of estimates</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 2012 and 2011 include the allowance for
doubtful accounts, stock-based compensation, the useful lives of property and equipment and intangible assets, warrant liability
and revenue recognition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Cash and cash equivalents</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company considers all liquid debt
instruments with original maturities of three months or less to be cash equivalents.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><BR>
<FONT STYLE="font-family: Times New Roman, Times, Serif; font-weight: normal">NOTE 1 &ndash; <U>BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Accounts receivable</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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, 2012 and December 31, 2011, the Company has established, based on a review
of its outstanding balances, an allowance for doubtful accounts in the amount of $0. The Company had no write-offs of accounts
receivable during the nine months ended September 30, 2012 and 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Accounts receivable from the two largest
InsPro Technologies clients accounted for 36% and 19%, respectively, of the Company&rsquo;s total accounts receivable balance
at September 30, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Fair value of financial instruments</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The carrying amounts of financial instruments,
including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and capital leases
approximated fair value as of September 30, 2012 and December 31, 2011, because of the relatively short-term maturity of these
instruments and their market interest rates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective January 1, 2008, the Company
adopted Financial Accounting Standards Board (the &ldquo;FASB&rdquo;) ASC 820, &ldquo;Fair Value Measurements and Disclosures&rdquo;
(&ldquo;ASC 820&rdquo;), 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. The
adoption of ASC 820 did not have an impact on the Company&rsquo;s financial position or operating results, but did expand certain
disclosures.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">ASC 820 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs. These inputs are prioritized below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 9%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: justify">Level 1:</TD>
    <TD STYLE="width: 79%; text-align: justify">Observable inputs such as quoted market prices in active markets for identical
    assets or liabilities.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Level 2:</TD>
    <TD STYLE="text-align: justify">Observable market-based inputs or unobservable inputs that are corroborated by market data.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Level 3:</TD>
    <TD STYLE="text-align: justify">Unobservable inputs for which there is little or no market data, which require the use of
    the reporting entity&rsquo;s own assumptions.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company measured its warrant liability
using Level 3 inputs as defined by ASC 820.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Property and equipment</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Property and equipment are carried at
cost. The cost of repairs and maintenance are 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 FASB ASC 360, &quot;Accounting for the Impairment
or Disposal of Long-Lived Assets&quot; 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Intangible assets</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Intangible assets consist of assets acquired
in connection with the acquisition of InsPro Technologies and costs incurred in connection with the development of the Company&rsquo;s
software. See Note 4 &ndash; Intangible Assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Impairment of long-lived assets</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Warrant liability</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective September 30, 2012, the full
ratchet anti-dilution provisions pertaining to warrants issued during 2009 and 2010 expired. Consequently, the Company has determined
that effective September 30, 2012, all of the Company&rsquo;s issued and outstanding warrants qualify for a scope exception under
ASC 815-40-15 as they are indexed to the Company&rsquo;s stock. Effective September 30, 2012, the Company recorded the elimination
of the warrant liability by recording a debit to warrant liability in the amount of $6,182,309 and a credit to additional paid
in capital in the amount of $6,182,309. See Note 5 Shareholders&rsquo; Equity &ndash; Common Stock Warrants. For the nine months
ended September 30, 2012, the Company recorded a loss on the change in fair value of derivative liability of $4,508,078 to mark-to-market
for the increase in fair value of the warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Income taxes</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company accounts for income taxes
under the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Earnings (loss) per common share</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Basic earnings (loss) per share is computed
by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during the period. Diluted loss per common share is not presented because it is
anti-dilutive. The Company's common stock equivalents at September 30, 2012, include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 82%">Series A convertible preferred stock issued and outstanding</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 15%; text-align: right">25,535,000</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Series B convertible preferred stock issued and outstanding</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">55,947,580</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Options, issued, outstanding and exercisable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">4,885,000</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Warrants to purchase common stock, issued, outstanding and exercisable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">87,020,457</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 1pt">Warrants to purchase series A convertible preferred stock, issued, outstanding and exercisable</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">6,000,000</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">179,388,037</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Revenue recognition</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro Technologies offers InsPro Enterprise
software on a licensed and an ASP basis. An InsPro Enterprise license entitles the purchaser a perpetual license to a copy of
the InsPro Enterprise installed at a single client location.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Alternatively, ASP hosting service enables
a client to lease InsPro Enterprise, paying only for that capacity required to support their business. ASP clients access InsPro
Enterprise installed on InsPro Technologies&rsquo; owned servers located at InsPro Technologies&rsquo; office or at a third party&rsquo;s
site.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro Technologies&rsquo; software maintenance
fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and the InsPro Enterprise
help desk.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro Technologies&rsquo; consulting
and implementation services are generally associated with the implementation of an 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 document design and system documentation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro Technologies&rsquo; revenue is
generally recognized under ASC 985-605. For software arrangements involving multiple elements, 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 collectibility is probable. Revenue related
to post-contract customer support (&ldquo;PCS&rdquo;), 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 collectibility 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 module, the Company allocates the total arrangement fee among
the modules based on the relative fair value of each of the modules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The unearned portion of the Company&rsquo;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Cost of revenues</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Cost of revenues includes direct <FONT STYLE="color: black">labor
and associated costs for employees and independent contractors performing InsPro Enterprise design, development, implementation,
testing together with customer management, training and technical support, as well as facilities, equipment and software costs.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Advertising and other marketing</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Advertising and other marketing costs
are expensed as incurred.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Concentrations of credit risk</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company maintains its cash in bank
deposit accounts, which exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation (&ldquo;FDIC&rdquo;).
In 2010 the FDIC insurance coverage limit was permanently increased to $250,000 per depositor, per institution as a result of
the Dodd-Frank Wall Street and Consumer Protection Act. Beginning December 31, 2010, the FDIC has implemented a new temporary
insurance category to provide unlimited FDIC insurance coverage for funds held in noninterest-bearing transaction accounts at
insured banks. This temporary category will remain in effect through December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At September 30, 2012, the Company had
$2,091,032 of cash in United States bank deposits, of which $2,091,032 was federally insured.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table lists the percentage
of the Company&rsquo;s revenue, which was earned from the Company&rsquo;s two largest InsPro Enterprise clients.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD>
    <TD NOWRAP COLSPAN="6" STYLE="border-bottom: black 1pt solid; text-align: center">For the Nine Months ended September 30,</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">2012</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center">2011</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 54%">Largest InsPro client</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 19%; text-align: right">36</TD>
    <TD STYLE="width: 2%">%</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 19%; text-align: right">28</TD>
    <TD STYLE="width: 2%">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Second largest InsPro client</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">12</TD>
    <TD>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">11</TD>
    <TD>%</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Stock-based compensation</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Registration rights agreements</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company classifies as liability instruments
the fair value of registration rights agreements when such agreements (i) require it to file, and cause to be declared effective
under the Securities Act of 1933, as amended, a registration statement with the Commission within contractually fixed time periods,
and (ii) provide for the payment of liquidating damages in the event of its failure to comply with such agreements and such failure
is probable. Registration rights with these characteristics are accounted for as derivative financial instruments at fair value
and contracts that are (a) indexed to and potentially settled in an issuer's own stock and (b) permit gross physical or net share
settlement with no net cash settlement alternative are classified as equity instruments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At September 30, 2012, the Company does
not believe that it is probable that the Company will incur a penalty in connection with the Company&rsquo;s registration rights
agreements. Accordingly no liability was recorded as of September 30, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 1 &ndash; <U>BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Recent accounting pronouncements</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Various<FONT STYLE="color: black"> accounting
standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 2 &ndash; <U>DISCONTINUED OPERATIONS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: black">The Company
has classified its former t</FONT>elesales call center and external (ISG) agent produced agency business (the &ldquo;Agency Business&rdquo;),
its former Insurint business and its leased offices located in New York and Florida as discontinued operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The financial position of discontinued
operations was as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">September 30, 2012</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: center; border-bottom: Black 1pt solid">December 31, 2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 72%; font-size: 10pt; text-align: left">Accounts receivable, less allowance for doubtful accounts $0</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">84,817</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">49,779</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Other current assets</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">3,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">54,223</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">Net current assets of discontinued operations</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">87,817</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">104,002</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The results of discontinued operations were as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="6" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">For the Three Months Ended September 30,</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="6" STYLE="border-bottom: black 1pt solid">For the Nine Months Ended September 30,</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">2012</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">2011</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">2012</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center">2011</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 36%">Revenues:</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Commission and other revenue from carriers</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">14,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">34,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">64,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">145,278</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Transition policy commission pursuant to the Agreement</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">131,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">176,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">374,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">564,697</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt">Sub-lease revenue</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">-</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">-</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">-</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">150,100</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">145,714</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">210,338</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">438,791</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">860,075</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Operating expenses:</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="text-indent: 11pt">Salaries, employee benefits and related taxes</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">11,118</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="text-indent: 11pt">Rent, utilities, telephone and communications</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">171,510</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="text-indent: 11pt">Professional fees</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">(1,961</TD>
    <TD>)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt; text-indent: 11pt">Other general and administrative</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">6,896</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">11,809</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">29,697</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">41,374</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="text-indent: 11pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">6,896</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">11,809</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">29,697</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">222,041</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 2.5pt">Gain from discontinued operations</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">138,818</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">198,529</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">409,094</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">638,034</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 3 - <U>PROPERTY AND EQUIPMENT</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Property and equipment consisted of the
following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">Useful <BR> Life<BR> (Years)</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">At September 30, 2012</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center">At December 31, 2011</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 60%; text-align: justify">Computer equipment and software</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 15%; text-align: center">3</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 9%; text-align: right">2,730,282</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 9%; text-align: right">1,354,525</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="text-align: justify">Office equipment</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">4.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">230,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">204,442</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="text-align: justify">Office furniture and fixtures</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">6.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">189,857</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">189,857</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt; text-align: justify">Leasehold improvements</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center">5.4</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">94,620</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">34,034</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3,245,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,782,858</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 1pt; text-align: justify">Less accumulated depreciation</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">(1,743,189</TD>
    <TD STYLE="padding-bottom: 1pt">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">(1,286,166</TD>
    <TD STYLE="padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 2.5pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">1,501,836</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">496,692</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: black">For the three
months ended September 30, 2012 and 2011, depreciation expense was $168,632 and $79,837, respectively. For the nine months ended
September 30, 2012 and 2011, depreciation expense was $457,021 and $261,257, respectively. For the nine months ended September
30, 2012, depreciation expense includes $41,896 of additional, accelerated depreciation expense as a result of InsPro Technologies&rsquo;
abandonment of certain furniture and equipment in the second quarter of 2012, which occurred as a result of InsPro Technologies
move to newly furnished office space in Baldwin Towers. </FONT>See Note 8 &ndash; Operating Leases and future commitments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 4 &ndash; <U>INTANGIBLE ASSETS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Intangible assets consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">Useful <BR> Life <BR> (Years)</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">At September 30, 2012</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center">At December 31, 2011</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 60%">InsPro Technologies intangible assets acquired</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 15%; text-align: center">4.7</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 9%; text-align: right">2,097,672</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 9%; text-align: right">2,097,672</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt">Software development costs for external marketing</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center">2</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">174,296</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">174,296</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">2,271,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">2,271,968</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 1pt">Less: accumulated amortization</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">(2,271,968</TD>
    <TD STYLE="padding-bottom: 1pt">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">(2,011,918</TD>
    <TD STYLE="padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">-</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">260,050</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the three months ended September 30,
2012 and 2011, amortization expense was $86,683 and $86,684, respectively. For the nine months ended September 30, 2012 and 2011,
amortization expense was $260,050 and $260,052, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 5 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Stock options</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: black">On May 20,
2012, 250,000 options, which were previously granted to </FONT>an outside consultant,<FONT STYLE="color: black"> expired in accordance
with the terms of the stock options. On August 4, 2012, 250,000 options, which were previously granted to the former vice chairman
of the Company&rsquo;s board of directors, expired in accordance with the terms of the stock options.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company recorded compensation expense
pertaining to employee stock options in salaries, commission and related taxes of $72,632 and $70,354 for the nine months ended
September 30, 2012 and 2011, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The value of equity compensation expense
not yet expensed pertaining to unvested equity compensation was $131,225 as of September 30, 2012, which will be recognized over
a weighted average 3.3 years in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-weight: normal">The total
intrinsic value of stock options outstanding and exercisable as of September 30, 2012 was $21,345.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the Company's outstanding
stock options as of and for the three months ended September 30, 2012 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Number</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Weighted</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2">&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Of Shares</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Average</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Weighted</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Underlying</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Exercise</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Average</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">Options</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">Price</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center">Fair Value</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 60%">Outstanding at December 31, 2011</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 10%; text-align: right">6,835,000</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 9%; text-align: right">0.47</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 9%; text-align: right">0.32</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>For the period ended September 30, 2012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 9pt">Granted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-left: 9pt">Exercised</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Expired</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">(500,000</TD>
    <TD STYLE="padding-bottom: 1pt">)</TD>
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">0.10</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-left: 9pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">0.10</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 2.5pt">Outstanding at September 30, 2012</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">6,335,000</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">0.47</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">0.33</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 2.5pt">Outstanding and exercisable at September 30, 2012</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">4,885,000</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">0.57</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">0.40</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 5 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following information applies to options
outstanding at September 30, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP COLSPAN="14" STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-size: 10pt">Options Outstanding</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="6" STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-size: 10pt">Options Exercisable</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-size: 10pt">Exercise</FONT><BR>
    <FONT STYLE="font-size: 10pt">Price</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center"><FONT STYLE="font-size: 10pt">Number
    of </FONT><BR>
    <FONT STYLE="font-size: 10pt">Shares </FONT><BR>
    <FONT STYLE="font-size: 10pt">Underlying </FONT><BR>
    <FONT STYLE="font-size: 10pt">Options</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center"><FONT STYLE="font-size: 10pt">Weighted
    </FONT><BR>
    <FONT STYLE="font-size: 10pt">Average </FONT><BR>
    <FONT STYLE="font-size: 10pt">Remaining </FONT><BR>
    <FONT STYLE="font-size: 10pt">Contractual </FONT><BR>
    <FONT STYLE="font-size: 10pt">Life</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center"><FONT STYLE="font-size: 10pt">Exercise
    </FONT><BR>
    <FONT STYLE="font-size: 10pt">Price</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center"><FONT STYLE="font-size: 10pt">Number
    </FONT><BR>
    <FONT STYLE="font-size: 10pt">Exercisable</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-size: 10pt">Exercise </FONT><BR>
    <FONT STYLE="font-size: 10pt">Price</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">$</FONT></TD>
    <TD STYLE="width: 4%; text-align: right"><FONT STYLE="font-size: 10pt">0.060</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: right"><FONT STYLE="font-size: 10pt">405,000</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: right"><FONT STYLE="font-size: 10pt">2.4</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">$</FONT></TD>
    <TD STYLE="width: 16%; text-align: right"><FONT STYLE="font-size: 10pt">0.060</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: right"><FONT STYLE="font-size: 10pt">405,000</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">$</FONT></TD>
    <TD STYLE="width: 15%; text-align: right"><FONT STYLE="font-size: 10pt">0.060</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.065</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">500,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3.0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.065</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">400,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.065</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.100</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">2,705,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">1.6</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.100</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">2,105,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.100</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.111</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">1,500,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3.1</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.111</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">750,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.111</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">1.000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">750,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3.4</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">1.000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">750,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">1.000</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3.500</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">75,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3.8</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3.500</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">75,000</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3.500</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 10pt">$</FONT></TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">3.600</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">400,000</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">3.8</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 10pt">$</FONT></TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">3.600</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">400,000</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 10pt">$</FONT></TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">3.600</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right"><FONT STYLE="font-size: 10pt">6,335,000</FONT></TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right"><FONT STYLE="font-size: 10pt">4,885,000</FONT></TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of September 30, 2012, there were 30,000,000
shares of our common stock authorized to be issued under the Company&rsquo;s 2010 Equity Compensation Plan, of which 22,661,980
shares of our common stock remain available for future stock option grants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Common stock warrants</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 30, 2012, warrants to purchase
4,966,887 shares of the Company&rsquo;s common stock at an exercise price of $1.51 per share expired in accordance with the terms
of the warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 30, 2012, t<FONT STYLE="color: black">he
full ratchet anti-dilution adjustment provisions pertaining to warrants issued on January 15, 2009 and during 2010 expired</FONT>
in accordance with the terms of the warrants<FONT STYLE="color: black">.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 5 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the status of the Company's
outstanding common stock warrants as of and for the three months ended September 30, 2012 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2">&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Weighted</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Common</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Average</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Stock</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Exercise</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">Warrants</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center">Price</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 64%">Outstanding and exercisable at December 31, 2011</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 15%; text-align: right">91,987,344</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 15%; text-align: right">0.24</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>For the period ended September 30, 2012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Granted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Exercised</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt">Expired</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">(4,966,887</TD>
    <TD STYLE="padding-bottom: 1pt">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">1.51</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 2.5pt">Outstanding and exercisable at September 30, 2012</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">87,020,457</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">0.17</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following information applies to common
stock warrants outstanding at September 30, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-size: 10pt">Warrant </FONT><BR>
    <FONT STYLE="font-size: 10pt">Issue Date</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center"><FONT STYLE="font-size: 10pt">Warrant
    </FONT><BR>
    <FONT STYLE="font-size: 10pt">Exercise </FONT><BR>
    <FONT STYLE="font-size: 10pt">Price</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center"><FONT STYLE="font-size: 10pt">Warrant
    </FONT><BR>
    <FONT STYLE="font-size: 10pt">Expiration </FONT><BR>
    <FONT STYLE="font-size: 10pt">Date</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center"><FONT STYLE="font-size: 10pt">Weighted
    </FONT><BR>
    <FONT STYLE="font-size: 10pt">Average </FONT><BR>
    <FONT STYLE="font-size: 10pt">Remaining </FONT><BR>
    <FONT STYLE="font-size: 10pt">Life</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-size: 10pt">Anti-dilution </FONT><BR>
    <FONT STYLE="font-size: 10pt">Provision </FONT><BR>
    <FONT STYLE="font-size: 10pt">Expiration </FONT><BR>
    <FONT STYLE="font-size: 10pt">Date</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-size: 10pt">Outstanding
    </FONT><BR>
    <FONT STYLE="font-size: 10pt">Common </FONT><BR>
    <FONT STYLE="font-size: 10pt">Stock </FONT><BR>
    <FONT STYLE="font-size: 10pt">Warrants</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 15%; text-align: center"><FONT STYLE="font-size: 10pt">3/31/2008</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right"><FONT STYLE="font-size: 10pt">0.20</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 18%; text-align: right"><FONT STYLE="font-size: 10pt">3/31/2013</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 14%; text-align: right"><FONT STYLE="font-size: 10pt">0.5</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: right"><FONT STYLE="font-size: 10pt">expired</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right"><FONT STYLE="font-size: 10pt">25,000,000</FONT></TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">1/15/2009</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.15</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">1/14/2014</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">1.3</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">9/30/2012</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">26,666,667</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">3/26/2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.15</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3/26/2015</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">2.5</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">9/30/2012</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">7,380,000</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">9/30/2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.15</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">9/30/2015</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3.0</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">9/30/2012</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">18,000,010</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">11/29/2010</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.15</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">11/29/2015</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">3.2</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">9/30/2012</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">2,000,000</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt; text-align: center"><FONT STYLE="font-size: 10pt">12/22/2010</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">0.15</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">12/22/2015</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">3.2</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right"><FONT STYLE="font-size: 10pt">9/30/2012</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right"><FONT STYLE="font-size: 10pt">7,973,780</FONT></TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right"><FONT STYLE="font-size: 10pt">87,020,457</FONT></TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 5 &ndash; <U>SHAREHOLDERS&rsquo;
EQUITY DEFICIT) (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Preferred stock warrants</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the status of the Company's
outstanding Series A preferred stock warrants as of and for the period ended September 30, 2012 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2">&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Weighted</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Preferred</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Average</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Stock</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Exercise</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: center">Warrants</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; text-align: center">Price</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 76%">Outstanding at December 31, 2011</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right">300,000</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right">4.00</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>For the period ended September 30, 2012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Granted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Exercised</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt">Expired</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">-</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">-</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 2.5pt">Outstanding at September 30, 2012</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">300,000</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">4.00</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 2.5pt">Exercisable at September 30, 2012</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">300,000</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">4.00</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Outstanding Series A preferred stock warrants
at September 30, 2012 have a remaining contractual life of 3.4 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 6 &ndash; <U>CAPITAL LEASE OBLIGATIONS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">InsPro Technologies has entered into several
capital lease obligations to purchase equipment used for operations. InsPro Technologies has the option to purchase the equipment
at the end of the lease agreement for one dollar. The underlying assets and related depreciation were included in the appropriate
fixed asset category and related depreciation account.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Property and equipment includes the following
amounts for leases that have been capitalized:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center">September 30, 2012</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center">December 31, 2011</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">Useful Life (Years)</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Computer equipment and software</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">672,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">654,690</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Phone System</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">15,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">15,011</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 46%; padding-bottom: 1pt">Leasehold improvements</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 15%; padding-bottom: 1pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 15%; border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">-</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="width: 15%; border-bottom: black 1pt solid; text-align: right">-</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">687,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">669,701</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 1pt">Less accumulated depreciation</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; padding-bottom: 1pt; text-align: right">(610,516</TD>
    <TD STYLE="padding-bottom: 1pt">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">(555,141</TD>
    <TD STYLE="padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; padding-bottom: 2.5pt; text-align: right">76,522</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">114,560</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 6 &ndash; <U>CAPITAL LEASE OBLIGATIONS
(continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Future minimum payments required under
capital leases at September 30, 2012 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 60%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 82%">2012</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 15%; text-align: right">27,025</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>2013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">69,638</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">66,541</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt">2015</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">17,324</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Total future payments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">180,528</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 1pt">Less amount representing interest</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">10,433</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Present value of future minimum payments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">170,095</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt">Less current portion</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">74,319</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 2.5pt">Long-term portion</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">95,776</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 7 &ndash; <U>DEFINED CONTRIBUTION
401(k) PLAN</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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
90 days of employment with the Company. Effective January 1, 2007, the Company implemented an elective contribution to the plan
of 25% of the employee&rsquo;s contribution up to 4% of the employee&rsquo;s compensation (the &ldquo;Contribution&rdquo;). 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 $42,618 and $33,914 for the nine months ended September 30, 2012 and
2011, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>OPERATING LEASES AND
FUTURE COMMITMENTS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 14, 2007, InsPro Technologies
<FONT STYLE="color: black">entered into a lease agreement with</FONT> BPG Officer VI Baldwin Tower L.P. (&ldquo;BPG&rdquo;) for
approximately 5,524 square feet of office space at Baldwin Towers in Eddystone, Pennsylvania (the &ldquo;BPG Lease&rdquo;). On
March 26, 2008, and again on December 2, 2008, the Company and BPG agreed to amend the BPG Lease to increase the leased office
space by 1,301 and 6,810 square feet, respectively. <FONT STYLE="color: black">The term of the lease commenced on October 1, 2007
and was to expire on January 31, 2013. Under the terms of the BPG Lease, rent was waived for the first, second, tenth and twenty-fifth
months of the lease term.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 15, 2012, InsPro Technologies
and BPG agreed to amend the BPG Lease to extend its term to January 31, 2017, and after BPG completes certain building improvements
InsPro Technologies will move from its current location to another floor of the same building and lease 17,567 square feet of
furnished office space from BPG. InsPro Technologies&rsquo; monthly rent shall be $24,887 per month commencing with InsPro Technologies&rsquo;
occupancy of the new office space, which occurred in June 2012 through January 31, 2013. InsPro Technologies' monthly rent will
increase to $25,619 per month February 1, 2013 through January 31, 2014, increase to $26,351 per month February 1, 2014 through
January 31, 2015, increase to $27,082 per month February 1, 2015 through January 31, 2016, and finally increase to $27,814 per
month through February 1, 2016 through January 31, 2017.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 8 &ndash; <U>OPERATING LEASES AND
FUTURE COMMITMENTS (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company recorded a liability for deferred
rent pertaining to its lease with Radnor Properties-SDC, L.P. in the amount of $110,357 as of September 30, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company leases certain real and personal
property under non-cancelable operating leases. Rent expense was $403,527 and $532,751 for the nine months ended September 30,
2012 and 2011, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Future minimum payments required under
operating leases and service agreements at September 30, 2012 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 40%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 82%">2012</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 15%; text-align: right">169,740</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>2013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">560,032</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">571,317</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">581,709</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>2016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">594,197</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 1pt">thereafter</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">93,335</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">2,570,330</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 9 &ndash; <U>SUBSEQUENT EVENTS</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Management has evaluated the effects of
events subsequent to September 30, 2012 and has concluded that any events requiring adjustment to or disclosure in the financial
statements have been made.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Loan and Security Agreement with Silicon
Valley Bank</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On October 3, 2012, the Company together
with InsPro Technologies (the &ldquo;Borrowers&rdquo;) entered into a Loan and Security Agreement (the &ldquo;Loan Agreement&rdquo;)
with Silicon Valley Bank (&ldquo;SVB&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Loan Agreement established a revolving
credit facility for the Borrowers in the principal amount of up to $2,000,000 (the &ldquo;Revolving Facility&rdquo;). Availability
under the Revolving Facility is tied to a borrowing base formula that is based on 80% of the Borrowers&rsquo; eligible accounts
receivable, plus 20% of the aggregate unrestricted cash balance held at SVB (the &ldquo;Borrowing Base&rdquo;). Advances under
the Revolving Facility may be repaid and reborrowed in accordance with the Loan Agreement. No advances were made at closing however
an advance of $525,000 was made on October 15, 2012. Pursuant to the Loan Agreement, the Borrowers agreed to pay to SVB the outstanding
principal amount of all advances (the &ldquo;Advances&rdquo;), the unpaid interest thereon, and all other obligations incurred
with respect to the Loan Agreement on October 3, 2014. Interest will accrue on the unpaid principal balance of the Advances at
a floating per annum rate equal to 1% above the prime rate. During an event of default the rate of interest will increase 5% above
the otherwise applicable rate, until such event of default is cured or waived. All accrued and unpaid interest is payable monthly
on the first day of each month.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES</B><BR>
<B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>September 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE 9 &ndash; <U>SUBSEQUENT EVENTS (continued)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Subject to certain exceptions, the Loan
Agreement contains covenants prohibiting the Borrowers from, among other things: (a) conveying, selling, leasing, transferring
or otherwise disposing of their properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the
business currently engaged in or reasonably related thereto; (d) entering into any merger or consolidation, or acquiring all or
substantially all of the capital stock or property of another entity; (e) becoming liable for any indebtedness; (f) allowing any
lien or encumbrance on any of their property; (g) paying any dividends; and (h) making payment on subordinated debt. Further,
the Borrowers must maintain a minimum &ldquo;adjusted quick ratio,&rdquo; tested as of the last day of each month, of at least
1.75:1.00 commencing August 31, 2012. The adjusted quick ratio (the &ldquo;AQR&rdquo;) is the ratio of (x) the Borrowers&rsquo;
consolidated, unrestricted cash maintained with SVB (and, for 90 days after the closing date, maintained with PNC Bank) plus net
unbilled accounts receivable to (y) the Borrowers&rsquo; liabilities to SVB plus, without duplication, the aggregate amount of
the Borrowers&rsquo; liabilities that mature within 1 year (excluding subordinated debt), minus the current portion of deferred
revenue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Loan is secured by a first priority
perfected security interest in substantially all of the assets of the Borrowers, excluding the intellectual property of the Borrowers.
The Loan Agreement contains a negative covenant prohibiting the Borrowers from granting a security interest in their intellectual
property to any party.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Under the terms of the Loan Agreement,
the Borrowing Base under the Revolving Facility was $1,563,414 and the AQR was 1.64 as of September 30, 2012, which is below the
required 1.75:1.00 AQR. The Company has notified SVB that the AQR as of September 30, 2012, is lower than the required amount,
which represented a default on the Loan Agreement by the Company. On November 13, 2012 SVB agreed to waive the default and the
Company and SVB agreed to amend the Loan Agreement to lower the Company&rsquo;s requirement to maintain an AQR of 1.75 to 1.0
to 1.50 to 1.0 commencing with the month ending November 30, 2012 and as of the last day of each month thereafter.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Part II</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">INFORMATION NOT REQUIRED IN PROSPECTUS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 13. Other Expenses of Issuance and Distribution</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The expenses payable
by us in connection with this registration statement are estimated as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="width: 80%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%; padding-right: 5.4pt; padding-left: 5.4pt">Commission Registration Fee</TD>
    <TD STYLE="width: 50%; padding-right: 5.4pt; padding-left: 5.4pt">$341</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Accounting Fees and Expenses</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">$6,500</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Legal Fees and Expenses</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">$50,000</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Printing Fees and Expenses</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">$10,000</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Blue Sky Fees and Expenses (including legal fees)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">$10,000</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Miscellaneous</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">$5,000</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Total</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">$81,841</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 14. Indemnification of Directors and Officers.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Section 145 of the
Delaware General Corporation Law provides, in general, that a corporation incorporated under the laws of the State of Delaware,
such as us, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (other than a derivative action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another enterprise, against expenses (including attorneys&rsquo; fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding
if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person&rsquo;s
conduct was unlawful. In the case of a derivative action, a Delaware corporation may indemnify any such person against expenses
(including attorneys&rsquo; fees) actually and reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification will be made in respect of any claim, issue or matter
as to which such person will have been adjudged to be liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or any other court in which such action was brought determines such person is fairly and reasonably
entitled to indemnity for such expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our certificate of
incorporation and bylaws provide that we will indemnify our directors, officers, employees and agents to the extent and in the
manner permitted by the provisions of the Delaware General Corporation Law, as amended from time to time, subject to any permissible
expansion or limitation of such indemnification, as may be set forth in any stockholders&rsquo; or directors&rsquo; resolution
or by contract. We also have director and officer indemnification agreements with each of our executive officers and directors
which provide, among other things, for the indemnification to the fullest extent permitted or required by Delaware law, provided
that such indemnitee shall not be entitled to indemnification in connection with any &ldquo;claim&rdquo; (as such term is defined
in the agreement) initiated by the indemnitee against us or our directors or officers unless we join or consent to the initiation
of such claim, or the purchase and sale of securities by the indemnitee in violation of Section 16(b) of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 15. Recent Sales of Unregistered Securities</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the last three
years, we have issued the following securities that were not registered under the Securities Act:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On September 30, 2010,
we completed a private placement with certain accredited investors, including Independence Blue Cross, a Pennsylvania hospital
plan corporation, for an aggregate of 1,800,001 shares of our Series B Convertible Preferred Stock and warrants to purchase 18,000,010
shares of our common stock. We sold 1,800,001 investment units in the private placement at a per unit purchase price equal to
$3.00 for gross proceeds to us of $5.4 million. The sale was made pursuant to a Securities Purchase Agreement that we entered
into on September 30, 2010. Each unit sold in the private placement consisted of one share of Series B Convertible Preferred Stock
and a warrant to purchase 10 shares of common stock at an initial exercise price of $0.15 per share, subject to adjustment. Pursuant
to the Securities Purchase Agreement, on November 29, 2012, an additional 200,000 investment units were sold to Independence Blue
Cross, on the same terms and conditions as the units issued on September 30, 2012, for additional gross proceeds to us of $600,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 22, 2010,
we completed a note conversion with The Co-Investment Fund II, L.P., in which we issued an aggregate of 797,378 shares of our
Series B Convertible Preferred Stock and warrants to purchase 7,973,780 shares of our common stock, as full repayment of all outstanding
principal and interest under our Loan Agreement and Secured Promissory Note with The Co-Investment Fund II, L.P. We issued 797,378
investment units in the note conversion at a per unit conversion price equal to $3.00. The conversion was made pursuant to a Note
Conversion Agreement that we entered into on December 22, 2010. Each unit issued in the note conversion consisted of one share
of Series B Convertible Preferred Stock and a warrant to purchase 10 shares of common stock at an initial exercise price of $0.15
per share, subject to adjustment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 20, 2012,
we completed a private placement with certain accredited investors, including The Co-Investment Fund II, L.P., The Scarpa Family
Trust, 2005 and Azeez Investors, LLC, for an aggregate of 499,999 shares of our Series B Convertible Preferred Stock and warrants
to purchase 4,999,990 shares of our common stock. We sold 499,999 investment units in the private placement at a per unit purchase
price equal to $3.00 for gross proceeds to us of $1.5 million. The sale was made pursuant to a Securities Purchase Agreement that
we entered into on November 20, 2012. Each unit sold in the private placement consisted of one share of Series B Convertible Preferred
Stock and a warrant to purchase 10 shares of common stock at an initial exercise price of $0.15 per share, subject to adjustment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No underwriters were
involved in the above sales of securities. The securities described above in this Item 15 were issued to investors in the United
States in reliance on the exemption from the registration requirements of the Securities Act, as set forth in Section 4(2) under
the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act relative to sales by an issuer not involving
any public offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the last three
fiscal years, we also have issued the following securities that were not registered under the Securities Act:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of January 1, 2010,
we had granted, pursuant to our 2008 Equity Compensation Plan and Directors Compensation Plan, options to purchase a total of
8,758,050 shares of common stock at a weighted average exercise price of $1.55 per share. Also as of January 1, 2010, we had granted,
pursuant to our 2008 Equity Compensation Plan, 364,010 restricted shares of common stock at a weighted average per share price
of $2.43 per share and 414,010 shares of common stock at a weighted average per share price of $0.73. Also as of June 20, 2011,
we had granted, pursuant to our 2010 Equity Compensation Plan, options to purchase a total of 1,000,000 shares of common stock
at a per share price of $0.10. The issuance of stock options and the common stock issuable upon the exercise of such options as
described in this Item 15 were issued pursuant to written compensatory plans or arrangements with the registrant&rsquo;s employees,
directors and consultants, in reliance on the exemption provided by Rule 701 under the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16. Exhibits and Financial Statement Schedules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following is a
list of exhibits filed as part of this registration statement. Where so indicated by footnote, exhibits that were previously filed
are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 28%; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="width: 72%; padding-right: 5.4pt; padding-left: 0"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">2.1</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Agreement and Plan of Merger, dated November 23, 2005,
    among Darwin Resources Corp., Health Benefits Direct Corporation, and HBDC II, Inc. (incorporated by reference to Exhibit
    2.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on November 30, 2005).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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<P STYLE="margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">2.2</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Agreement and Plan of Merger, dated as of September
    21, 2007, by and among the Company, HBDC Acquisition, LLC, System Consulting Associates, Inc. and the shareholders of System
    Consulting Associates, Inc. party thereto (incorporated by reference from Exhibit 2.1 to the Registrant&rsquo;s Current Report
    on Form 8-K, filed with the Commission on September 26, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.1</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Incorporation (incorporated by reference
    to Exhibit 3.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on November 22, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.2</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Amended and Restated Bylaws (incorporated by reference
    to Exhibit 3.2 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on December 3, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.3</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Amendment to Certificate of Incorporation
    (incorporated by reference to Exhibit 3.3 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on
    November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.4</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Merger of HBDC II, Inc. with and into
    Health Benefits Direct Corporation (incorporated by reference to Exhibit 3.4 to the Registrant&rsquo;s Current Report on Form
    8-K filed with the Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.5</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Amendment to Certificate of Incorporation
    (incorporated by reference to Exhibit 3.5 to the Registrant&rsquo;s Registration Statement on Form SB-2, filed with the Commission
    on February 1, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.6</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Designation with respect to shares of
    Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant&rsquo;s Current Report on Form 8-K filed
    with the Commission on January 21, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.7</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Amendment to Certificate of Incorporation
    (incorporated by reference to Exhibit 3.7 to the Registrant&rsquo;s Annual Report on Form 10-K filed with the Commission on
    March 31, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.8</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Designation with respect to shares of
    Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant&rsquo;s Current Report on Form 8-K filed
    with the Commission on October 1, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.9</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Amendment to Certificate of Designation
    with respect to shares of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant&rsquo;s Current
    Report on Form 8-K filed with the Commission on December 23, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.10</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Amendment to Certificate of Incorporation
    filed November 18, 2010 (incorporated by reference to Exhibit 3.10 to the Registrant&rsquo;s Annual Report on Form 10-K for
    the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">3.11</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 0; text-align: justify">Certificate of Amendment to Certificate of Incorporation
    filed on November 24, 2010 (incorporated by reference to Exhibit 3.11 to the Registrant&rsquo;s Annual Report on Form 10-K
    for the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.1</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Common Stock Purchase Warrant Certificate (incorporated by reference
    to Exhibit 4.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.2</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Warrant to Purchase Common Stock issued to Alvin H. Clemens (incorporated
    by reference to Exhibit 4.2 to the Registrant&rsquo;s Annual Report on Form 10-KSB for the fiscal year ended December 31,
    2005, filed with the Commission on March 31, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.3</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated March 30, 2007, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.4</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated March 30, 2007, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.5</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.6</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Placement Agent Warrant (incorporated by reference to Exhibit
    4.4 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on March 30, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.7</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated October 1, 2007, by and between
    Health Benefits Direct Corporation and Computer Command and Control Company (incorporated by reference from Exhibit 4.1 to
    the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 4, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.8</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated October 1, 2007, by and among Health
    Benefits Direct Corporation and Robert J. Oakes, Jeff Brocco, Tim Savery and Lisa Roetz (incorporated by reference from Exhibit
    4.2 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 4, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.9</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated March 31, 2008, by and between
    Health Benefits Direct Corporation and the Investor party thereto (incorporated by reference from Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.10</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated March 31, 2008, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.11</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.12</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Registration Rights Agreement, dated March 31, 2008, by and
    among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.4 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.13</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Registration Rights Agreement, dated March 31, 2008, by and
    among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.3 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.14</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Board Representation Agreement, dated March 31, 2008, between Health
    Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.5 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.15</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated January 14, 2009, by and between
    Health Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on January 21, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.16</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated January 14, 2009, by and between
    Health Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on January 21, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.17</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Preferred Warrant (incorporated by reference from Exhibit 4.3 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on January 21, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.18</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Subscription Rights Certificate (incorporated by reference from
    Exhibit 4.18 to the Registrant&rsquo;s Registration Statement on Form S-1, filed with the Commission on December 31, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.19</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference from Exhibit 4.19 to the
    Registrant&rsquo;s Registration Statement on Form S-1, filed with the Commission on December 31, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.20</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated September 30, 2010, by and among
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.21</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated September 30, 2010, by and among
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.22</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.23</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Board Representation Agreement, dated September 30, 2010, by and between
    Health Benefits Direct Corporation and Independence Blue Cross (incorporated by reference from Exhibit 10.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.24</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Addendum and Certificate of Adjustment to Warrant (incorporated
    by reference to Exhibit 10.2 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 1,
    2010).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.25</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Addendum and Certificate of Adjustment to Warrant (incorporated
    by reference to Exhibit 10.3 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 1,
    2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.26</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Note Conversion Agreement, dated December 22, 2010, by and between InsPro
    Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.27</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated December 22, 2010, by and between
    InsPro Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.28</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.29</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated November 20, 2012, by and among
    InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.30</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated November 20, 2012, by and among
    InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.31</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.32**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Subscription Rights Certificate</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.33**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">5.1**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Opinion of Morgan, Lewis &amp; Bockius LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">8.1**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Opinion of Morgan, Lewis &amp; Bockius LLP regarding certain tax matters</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.1</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Health Benefits Direct Corporation Compensation Plan for Directors (incorporated
    by reference to Exhibit 10.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on March 20, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.2</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Lease Agreement, dated February 9, 2004, between Case Holding Co. and
    Platinum Partners, LLC (incorporated by reference to Exhibit 10.7 to the Registrant&rsquo;s Current Report on Form 8-K filed
    with the Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.3</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Lease between Health Benefits Direct Corporation and FG2200, LLC, effective
    March 15, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with
    the Commission on March 6, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.4</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Employment Agreement, dated November 18, 2005, between Health Benefits
    Direct Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.14 to the Registrant&rsquo;s Current Report
    on Form 8-K filed with the Commission on November 30, 2005).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.5</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amendment 2008-1 to Employment Agreement, dated March 31, 2008, between
    Health Benefits Direct Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.4 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.6</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Director and Officer Indemnification Agreement (incorporated
    by reference to Exhibit 10.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on January 17,
    2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.7</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Contribution Agreement, dated September 9, 2005, among Health
    Benefits Direct Corporation, Marlin Capital Partners I, LLC, Scott Frohman, Charles A. Eissa, Platinum Partners II LLC and
    Dana Boskoff (incorporated by reference to Exhibit 10.22 to the Registrant&rsquo;s Current Report on Form 8-K filed with the
    Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.8</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Employment Agreement, dated April 3, 2006, between HBDC II, Inc. and
    Ivan M. Spinner (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission
    on April 6, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.9</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Health Benefits Direct Corporation 2008 Equity Compensation Plan (incorporated
    by reference to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.10</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Health Benefits Direct Corporation 2008 Equity Compensation Plan Form
    of Nonqualified Stock Option Grant (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed with
    the Commission on March 28, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.11</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Sublease, dated March 7, 2006, between Health Benefits Direct Corporation
    and World Travel Partners I, LLC Form of Nonqualified Stock Option Grant (incorporated by reference to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on May 19, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.12</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">First Amendment to Sublease, dated April 18, 2006, between Health Benefits
    Direct Corporation ad World Travel Partners I, LLC (incorporated by reference to the Registrant&rsquo;s Current Report on
    Form 8-K filed with the Commission on May 19, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.13</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Letter Agreement, dated April 18, 2006, among World Travel Partners
    I, LLC, Health Benefits Direct Corporation, and 1120 Avenue of the Americas, LLC (incorporated by reference to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on May 19, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.14</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Software and Services Agreement, dated May 31, 2006, among Health Benefits
    Direct Corporation, Insurint Corporation, and Realtime Solutions Group, L.L.C. (incorporated by reference to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on June 2, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.15</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Lease, dated July 7, 2006, between Health Benefits Direct Corporation
    and Radnor Properties-SDC, L.P. (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed with
    the Commission on July 10, 2006).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.16</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Separation Agreement, dated December 7, 2006, between Health Benefits
    Direct Corporation and Scott Frohman (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed
    with the Commission on December 11, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.17</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amendment No. 1 to Option, dated as of February 15, 2007, delivered
    by Health Benefits Direct Corporation to Daniel Brauser (incorporated by reference to the Registrant&rsquo;s Current Report
    on Form 8-K filed with the Commission on February 16, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.18</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Consent and Lock-Up Agreement, dated April 5, 2007, between Health Benefits
    Direct Corporation and Scott Frohman (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed
    with the Commission on April 6, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.19</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Agreement to Transfer Partnership Interests, dated October 1, 2007,
    by and among HBDC Acquisition, LLC and the former partners of BileniaTech, L.P. (incorporated by reference from Exhibit 10.1
    to the Company&rsquo;s Current Report on Form 8-K, filed with the Commission on October 4, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.20</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amended and Restated Employment Agreement, dated November 27, 2007,
    between Health Benefits Direct Corporation and Alvin H. Clemens (incorporated by reference to Exhibit 10.1 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on December 3, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.21</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amended and Restated Employment Agreement, dated November 27, 2007,
    between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.2 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on December 3, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.22</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amendment 2008-1 to Amended and Restated Employment Agreement, dated
    March 31, 2008, between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.3
    to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.23</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Client Transition Agreement, between Health Benefits Direct Corporation,
    HBDC II, Inc. and eHealthInsurance Services, Inc. (incorporated by reference to Exhibit 10.31 to the Registrant&rsquo;s Annual
    Report on Form 10-K filed with the Commission on March 31, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.24</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Loan Agreement, dated December 22, 2009, by and among Health Benefits
    Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC, InsPro
    Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on December 29, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.25</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Secured Promissory Note, dated December 22, 2009, by and among Health
    Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC,
    InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on December 29, 2009).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify; width: 28%">10.26</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify; width: 72%">First Amendment to Loan Documents, dated June 15, 2010,
    by and among Health Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum
    Partners, LLC, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to
    the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on June 17, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.27</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Health Benefits Direct Corporation 2010 Equity Compensation Plan (incorporated
    by reference to Exhibit 10.27 to the Registrant&rsquo;s Annual Report on Form 10-K for the fiscal year ended December 31,
    2010, filed with the Commission on March 31, 2011).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.28</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">InsPro Technologies Corporation Amended and Restated Compensation Policy
    for Non-Employee Directors (incorporated by reference to Exhibit 99.1 to the Registrant&rsquo;s Current Report on Form 8-K,
    filed with the Commission on December 16, 2011).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.29</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Loan and Security Agreement, dated as of October 3, 2012, by and among
    InsPro Technologies Corporation, InsPro Technologies, LLC, Atiam Technologies L.P. and Silicon Valley Bank (incorporated by
    reference to Exhibit 99.1 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 10, 2012).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">14</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amended and Restated Code of Business Conduct and Ethics (incorporated
    by reference to Exhibit 14.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on February 4,
    2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">21*</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Subsidiaries of InsPro Technologies Corporation</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">23.1*</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Consent of Sherb &amp; Co., LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">23.2**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Consent of Morgan, Lewis &amp; Bockius LLP (included in Exhibit 5.1
    Opinion and Exhibit 8.1 Opinion)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.1**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Instructions for Use of InsPro Technologies Corporation Subscription
    Rights Certificate</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.2**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Notice of Guaranteed Delivery</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.3**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Letter to Security Dealers, Commercial Banks, Trust Companies
    and Other Nominees</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.4**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Letter to Clients</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.5**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Notice to Stockholders of Subscription Rights</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.6**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Beneficial Owner Election Form</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.7**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Nominee Holder Certification</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">____________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">* &#9;Filed herewith.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">**&#9;To be filed by amendment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 17. Undertakings.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The undersigned Registrant
hereby undertakes:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(1)&#9;To file, during
any period in which offers or sales are being made, a post-effective amendment to this registration statement:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(i)&#9;To include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(ii)&#9;To reflect in
the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering
price set forth in the &ldquo;Calculation of Registration Fee&rdquo; table in the effective registration statement;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(iii)&#9;To include
any material information with respect to the plan of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(2)&#9;That, for the
purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(3)&#9;To remove from
registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(4)&#9;That, for purposes
of determining any liability under the Securities Act of 1933, each filing of the registrant&rsquo;s annual report pursuant to
section 13(a)&#9;or section 15(d)&#9;of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan&rsquo;s annual report pursuant to section 15(d)of the Securities Exchange Act of 1934)&#9;that is incorporated by
reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(5)&#9;To supplement
the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer, the transactions
by the underwriters during the subscription period, the amount of unsubscribed securities to be purchased by the underwriters,
and the terms of any subsequent reoffering thereof. If any public offering by the underwriters is to be made on terms differing
from those set forth on the cover page of the prospectus, a post-effective amendment will be filed to set forth the terms of such
offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(6)&#9;Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(7)&#9;For the purpose
of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant
to rule 424(b)(1), or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(8)&#9;For the purpose
of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">SIGNATURES</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the requirements
of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorizes this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Radnor, Commonwealth of Pennsylvania, on this 31<SUP>st</SUP> day of December, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 50%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD COLSPAN="2" STYLE="font-size: 10pt; text-align: justify; text-indent: 0in; background-color: White; padding-left: 0.5in">INSPRO
    TECHNOLOGIES CORPORATION</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify; text-indent: 0in; background-color: White; padding-left: 0.5in; width: 24%">&nbsp;</TD>
    <TD STYLE="background-color: White; width: 76%">&nbsp;</TD></TR>

<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: justify; text-indent: 0in; background-color: White; padding-left: 0.5in">By:</TD>
    <TD STYLE="background-color: White; border-bottom: Black 1pt solid">/s/ ANTHONY R. VERDI</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify; text-indent: 0in; background-color: White; padding-left: 0.5in"></TD>
    <TD STYLE="background-color: White">Anthony R. Verdi</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: justify; text-indent: 0in; background-color: White; padding-left: 0.5in"></TD>
    <TD STYLE="background-color: White">Chief Executive Officer, Chief Financial</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify; text-indent: 0in; background-color: White; padding-left: 0.5in"></TD>
    <TD STYLE="background-color: White">Officer and Chief Operating Officer</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We, the undersigned
officers and directors of InsPro Technologies Corporation, hereby severally constitute and appoint Anthony R. Verdi our true and
lawful attorney with full power to him to sign for us and in our names in the capacities indicated below, the Registration Statement
on Form S-1 filed herewith and any and all subsequent amendments to said Registration Statement, and generally to do all such
things in our names and on our behalf in our capacities as officers and directors to enable InsPro Technologies Corporation to
comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our said attorney, or any of them, to said Registration
Statement and any and all amendments thereto.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the requirements
of the Securities Act of 1933, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 40%; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">/s/ Donald R. Caldwell</TD>
    <TD STYLE="width: 60%; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Donald R. Caldwell</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Chairman</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">/s/ Anthony R. Verdi</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Anthony R. Verdi</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Chief Executive Officer, Chief Financial Officer, Chief Operating Officer
    and Director (Principal Executive Officer, Principal Financial and Accounting Officer)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">/s/ Michael Azeez</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Michael Azeez</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">/s/ John Harrison</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">John Harrison</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">/s/ Robert J. Oakes</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Robert J. Oakes</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">/s/ Sanford Rich</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Sanford Rich</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">/s/ Brian K. Adamsky</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Brian K. Adamsky</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>

</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">EXHIBIT INDEX</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 28%; padding-right: 5.4pt"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="width: 72%; padding-right: 5.4pt"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">2.1</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Agreement and Plan of Merger, dated November 23, 2005, among Darwin
    Resources Corp., Health Benefits Direct Corporation, and HBDC II, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">2.2</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Agreement and Plan of Merger, dated as of September 21, 2007, by and
    among the Company, HBDC Acquisition, LLC, System Consulting Associates, Inc. and the shareholders of System Consulting Associates,
    Inc. party thereto (incorporated by reference from Exhibit 2.1 to the Registrant&rsquo;s Current Report on Form 8-K, filed
    with the Commission on September 26, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.1</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Incorporation (incorporated by reference to Exhibit 3.1
    to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on November 22, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.2</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2
    to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on December 3, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.3</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Amendment to Certificate of Incorporation (incorporated
    by reference to Exhibit 3.3 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on November 30,
    2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.4</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Merger of HBDC II, Inc. with and into Health Benefits
    Direct Corporation (incorporated by reference to Exhibit 3.4 to the Registrant&rsquo;s Current Report on Form 8-K filed with
    the Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.5</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Amendment to Certificate of Incorporation (incorporated
    by reference to Exhibit 3.5 to the Registrant&rsquo;s Registration Statement on Form SB-2, filed with the Commission on February
    1, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.6</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Designation with respect to shares of Series A Preferred
    Stock (incorporated by reference to Exhibit 3.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission
    on January 21, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.7</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Amendment to Certificate of Incorporation (incorporated
    by reference to Exhibit 3.7 to the Registrant&rsquo;s Annual Report on Form 10-K filed with the Commission on March 31, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.8</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Designation with respect to shares of Series B Preferred
    Stock (incorporated by reference to Exhibit 3.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission
    on October 1, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.9</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Amendment to Certificate of Designation with respect
    to shares of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant&rsquo;s Current Report on
    Form 8-K filed with the Commission on December 23, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.10</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Amendment to Certificate of Incorporation filed November
    18, 2010 (incorporated by reference to Exhibit 3.10 to the Registrant&rsquo;s Annual Report on Form 10-K for the fiscal year
    ended December 31, 2010, filed with the Commission on March 31, 2011).</TD></TR>
</TABLE>

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<P STYLE="margin: 0"></P>

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<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">3.11</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Certificate of Amendment to Certificate of Incorporation filed on November
    24, 2010 (incorporated by reference to Exhibit 3.11 to the Registrant&rsquo;s Annual Report on Form 10-K for the fiscal year
    ended December 31, 2010, filed with the Commission on March 31, 2011).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.1</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Common Stock Purchase Warrant Certificate (incorporated by reference
    to Exhibit 4.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.2</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Warrant to Purchase Common Stock issued to Alvin H. Clemens (incorporated
    by reference to Exhibit 4.2 to the Registrant&rsquo;s Annual Report on Form 10-KSB for the fiscal year ended December 31,
    2005, filed with the Commission on March 31, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.3</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated March 30, 2007, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.4</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated March 30, 2007, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.5</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.6</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Placement Agent Warrant (incorporated by reference to Exhibit
    4.4 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on March 30, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.7</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated October 1, 2007, by and between
    Health Benefits Direct Corporation and Computer Command and Control Company (incorporated by reference from Exhibit 4.1 to
    the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 4, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.8</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated October 1, 2007, by and among Health
    Benefits Direct Corporation and Robert J. Oakes, Jeff Brocco, Tim Savery and Lisa Roetz (incorporated by reference from Exhibit
    4.2 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 4, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.9</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated March 31, 2008, by and between
    Health Benefits Direct Corporation and the Investor party thereto (incorporated by reference from Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.10</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated March 31, 2008, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
</TABLE>

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    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.11</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.12</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Registration Rights Agreement, dated March 31, 2008, by and
    among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.4 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.13</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Registration Rights Agreement, dated March 31, 2008, by and
    among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.3 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.14</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Board Representation Agreement, dated March 31, 2008, between Health
    Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.5 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.15</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated January 14, 2009, by and between
    Health Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on January 21, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.16</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated January 14, 2009, by and between
    Health Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on January 21, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.17</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Preferred Warrant (incorporated by reference from Exhibit 4.3 to the
    Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on January 21, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.18</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Subscription Rights Certificate (incorporated by reference from
    Exhibit 4.18 to the Registrant&rsquo;s Registration Statement on Form S-1, filed with the Commission on December 31, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.19</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference from Exhibit 4.19 to the
    Registrant&rsquo;s Registration Statement on Form S-1, filed with the Commission on December 31, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.20</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated September 30, 2010, by and among
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.21</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated September 30, 2010, by and among
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.22</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.23</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Board Representation Agreement, dated September 30, 2010, by and between
    Health Benefits Direct Corporation and Independence Blue Cross (incorporated by reference from Exhibit 10.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).</TD></TR>
</TABLE>

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    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.24</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Addendum and Certificate of Adjustment to Warrant (incorporated
    by reference to Exhibit 10.2 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 1,
    2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.25</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Addendum and Certificate of Adjustment to Warrant (incorporated
    by reference to Exhibit 10.3 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 1,
    2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.26</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Note Conversion Agreement, dated December 22, 2010, by and between InsPro
    Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.27</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated December 22, 2010, by and between
    InsPro Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.28</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.29</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Purchase Agreement, dated November 20, 2012, by and among
    InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.30</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Registration Rights Agreement, dated November 20, 2012, by and among
    InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.31</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant&rsquo;s
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.32**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Subscription Rights Certificate</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">4.33**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Warrant</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">5.1**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Opinion of Morgan, Lewis &amp; Bockius LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">8.1**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Opinion of Morgan, Lewis &amp; Bockius LLP regarding certain tax matters</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.1</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Health Benefits Direct Corporation Compensation Plan for Directors (incorporated
    by reference to Exhibit 10.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on March 20, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.2</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Lease Agreement, dated February 9, 2004, between Case Holding Co. and
    Platinum Partners, LLC (incorporated by reference to Exhibit 10.7 to the Registrant&rsquo;s Current Report on Form 8-K filed
    with the Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.3</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Lease between Health Benefits Direct Corporation and FG2200, LLC, effective
    March 15, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with
    the Commission on March 6, 2006).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.4</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Employment Agreement, dated November 18, 2005, between Health Benefits
    Direct Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.14 to the Registrant&rsquo;s Current Report
    on Form 8-K filed with the Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.5</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amendment 2008-1 to Employment Agreement, dated March 31, 2008, between
    Health Benefits Direct Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.4 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.6</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Director and Officer Indemnification Agreement (incorporated
    by reference to Exhibit 10.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on January 17,
    2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.7</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Securities Contribution Agreement, dated September 9, 2005, among Health
    Benefits Direct Corporation, Marlin Capital Partners I, LLC, Scott Frohman, Charles A. Eissa, Platinum Partners II LLC and
    Dana Boskoff (incorporated by reference to Exhibit 10.22 to the Registrant&rsquo;s Current Report on Form 8-K filed with the
    Commission on November 30, 2005).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.8</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Employment Agreement, dated April 3, 2006, between HBDC II, Inc. and
    Ivan M. Spinner (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission
    on April 6, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.9</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Health Benefits Direct Corporation 2008 Equity Compensation Plan (incorporated
    by reference to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.10</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Health Benefits Direct Corporation 2008 Equity Compensation Plan Form
    of Nonqualified Stock Option Grant (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed with
    the Commission on March 28, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.11</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Sublease, dated March 7, 2006, between Health Benefits Direct Corporation
    and World Travel Partners I, LLC Form of Nonqualified Stock Option Grant (incorporated by reference to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on May 19, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.12</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">First Amendment to Sublease, dated April 18, 2006, between Health Benefits
    Direct Corporation ad World Travel Partners I, LLC (incorporated by reference to the Registrant&rsquo;s Current Report on
    Form 8-K filed with the Commission on May 19, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.13</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Letter Agreement, dated April 18, 2006, among World Travel Partners
    I, LLC, Health Benefits Direct Corporation, and 1120 Avenue of the Americas, LLC (incorporated by reference to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on May 19, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.14</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Software and Services Agreement, dated May 31, 2006, among Health Benefits
    Direct Corporation, Insurint Corporation, and Realtime Solutions Group, L.L.C. (incorporated by reference to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on June 2, 2006).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.15</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Lease, dated July 7, 2006, between Health Benefits Direct Corporation
    and Radnor Properties-SDC, L.P. (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed with
    the Commission on July 10, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.16</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Separation Agreement, dated December 7, 2006, between Health Benefits
    Direct Corporation and Scott Frohman (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed
    with the Commission on December 11, 2006).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.17</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amendment No. 1 to Option, dated as of February 15, 2007, delivered
    by Health Benefits Direct Corporation to Daniel Brauser (incorporated by reference to the Registrant&rsquo;s Current Report
    on Form 8-K filed with the Commission on February 16, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.18</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Consent and Lock-Up Agreement, dated April 5, 2007, between Health Benefits
    Direct Corporation and Scott Frohman (incorporated by reference to the Registrant&rsquo;s Current Report on Form 8-K filed
    with the Commission on April 6, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.19</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Agreement to Transfer Partnership Interests, dated October 1, 2007,
    by and among HBDC Acquisition, LLC and the former partners of BileniaTech, L.P. (incorporated by reference from Exhibit 10.1
    to the Company&rsquo;s Current Report on Form 8-K, filed with the Commission on October 4, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.20</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amended and Restated Employment Agreement, dated November 27, 2007,
    between Health Benefits Direct Corporation and Alvin H. Clemens (incorporated by reference to Exhibit 10.1 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on December 3, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.21</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amended and Restated Employment Agreement, dated November 27, 2007,
    between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.2 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on December 3, 2007).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.22</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amendment 2008-1 to Amended and Restated Employment Agreement, dated
    March 31, 2008, between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.3
    to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on March 31, 2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.23</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Client Transition Agreement, between Health Benefits Direct Corporation,
    HBDC II, Inc. and eHealthInsurance Services, Inc. (incorporated by reference to Exhibit 10.31 to the Registrant&rsquo;s Annual
    Report on Form 10-K filed with the Commission on March 31, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.24</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Loan Agreement, dated December 22, 2009, by and among Health Benefits
    Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC, InsPro
    Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on December 29, 2009).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.25</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Secured Promissory Note, dated December 22, 2009, by and among Health
    Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC,
    InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant&rsquo;s
    Current Report on Form 8-K filed with the Commission on December 29, 2009).</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

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<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; width: 28%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Exhibit Number</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; width: 72%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: Black 0.5pt solid"><B>Description</B></P></TD></TR>

<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify; width: 28%">10.26</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify; width: 72%">First Amendment to Loan Documents, dated June 15, 2010,
    by and among Health Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum
    Partners, LLC, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to
    the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on June 17, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.27</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Health Benefits Direct Corporation 2010 Equity Compensation Plan (incorporated
    by reference to Exhibit 10.27 to the Registrant&rsquo;s Annual Report on Form 10-K for the fiscal year ended December 31,
    2010, filed with the Commission on March 31, 2011).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.28</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">InsPro Technologies Corporation Amended and Restated Compensation Policy
    for Non-Employee Directors (incorporated by reference to Exhibit 99.1 to the Registrant&rsquo;s Current Report on Form 8-K,
    filed with the Commission on December 16, 2011).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">10.29</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Loan and Security Agreement, dated as of October 3, 2012, by and among
    InsPro Technologies Corporation, InsPro Technologies, LLC, Atiam Technologies L.P. and Silicon Valley Bank (incorporated by
    reference to Exhibit 99.1 to the Registrant&rsquo;s Current Report on Form 8-K, filed with the Commission on October 10, 2012).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">14</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Amended and Restated Code of Business Conduct and Ethics (incorporated
    by reference to Exhibit 14.1 to the Registrant&rsquo;s Current Report on Form 8-K filed with the Commission on February 4,
    2008).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">21*</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Subsidiaries of InsPro Technologies Corporation</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">23.1*</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Consent of Sherb &amp; Co., LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">23.2**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Consent of Morgan, Lewis &amp; Bockius LLP (included in Exhibit 5.1
    Opinion and Exhibit 8.1 Opinion)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.1**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Instructions for Use of InsPro Technologies Corporation Subscription
    Rights Certificate</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.2**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Notice of Guaranteed Delivery</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.3**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Letter to Security Dealers, Commercial Banks, Trust Companies
    and Other Nominees</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.4**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Letter to Clients</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.5**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Notice to Stockholders of Subscription Rights</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.6**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Beneficial Owner Election Form</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; text-align: justify">99.7**</TD>
    <TD STYLE="padding-right: 5.4pt; text-align: justify">Form of Nominee Holder Certification</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">____________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">* &#9;Filed herewith.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">**&#9;To be filed by amendment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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[{"type": "S-1", "sequence": "1", "filename": "v330780_s1.htm", "description": "FORM S-1", "secsgml_size_bytes": 1752463}]
{"company-data": {"conformed-name": "InsPro Technologies Corp", "cik": "0001309442", "assigned-sic": "7372", "irs-number": "980438502", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-185752", "film-number": "121293163"}, "business-address": {"street1": "150 N. RADNOR CHESTER RD.", "street2": "SUITE B-101", "city": "RADNOR", "state": "PA", "zip": "19087", "phone": "484-654-2206"}, "mail-address": {"street1": "150 N. RADNOR CHESTER RD.", "street2": "SUITE B-101", "city": "RADNOR", "state": "PA", "zip": "19087"}, "former-company": [{"former-conformed-name": "HEALTH BENEFITS DIRECT CORP", "date-changed": "20051201"}, {"former-conformed-name": "DARWIN RESOURCES CORP.", "date-changed": "20041123"}]}
As filed with the Securities and Exchange
Commission on December 31, 2012
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
________________
InsPro Technologies Corporation
(Exact name of registrant as specified
in charter)
Delaware
6411
98-0438502
(State or Other Jurisdiction of
(Primary Standard Industrial
(I.R.S. Employer
Incorporation or Organization)
Classification Code Number)
Identification No.)
150 N. Radnor-Chester Road
Suite B-101
Radnor, Pennsylvania 19087
(484) 654-2200
(Address,
including zip code, and Telephone Number, including area code of Registrant's Principal Executive Offices)
________________
Anthony R. Verdi
Chief Executive Officer, Chief Financial
Officer and Chief Operating Officer
InsPro Technologies Corporation
150 N. Radnor-Chester Road
Suite B-101
Radnor, Pennsylvania 19087
(484) 654-2200
(Name, Address, including zip code and
Telephone Number, including area code of Agent for Service)
Copy to:
James W. McKenzie, Jr., Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
(215) 963-5000
________________
Approximate Date
of Proposed Sale to the Public:
As soon as practicable after the effective date of this registration statement.
If any Securities
being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box:
£
If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
£
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
£
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
£
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 the 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
£
(Do not check if a smaller reporting
        company)
Smaller
    reporting company
R
1
CALCULATION OF REGISTRATION
    FEE
Title of Each Class of Securities
    To Be Registered
Proposed
    Maximum Aggregate Offering Price ($)
Amount of Registration Fee ($)
(1)
Series B Convertible Preferred Stock, par value
    $0.001 per share
—
—(2)
Warrants to Purchase Shares of Common Stock
—
—(3)
Units Consisting of 333 Shares of Series B Convertible
    Preferred Stock and a Five-Year Warrant to Purchase 3,330 Shares of Common Stock
—
—
Common Stock issuable upon exercise of the Warrants
—
—(4)
Common Stock issuable upon the conversion of the
    Series B Convertible Preferred Stock
—
—(5)
Total Registration
    Fee:
$2,500,000
$341.00
(1) Estimated solely for purposes of calculating the registration
fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2) Estimated solely for purposes of calculating the registration
fee in accordance with Rule 457(i) under the Securities Act of 1933, as amended.
(3) Pursuant to Rule 457(g), no separate registration fee is
required for the warrants offered hereby because they are being registered on the same registration statement as the common stock
underlying the warrants.
(4) Pursuant to Rule 416, the securities being
registered hereunder include such indeterminate number of additional shares of common stock as may be issuable upon exercise of
warrants registered hereunder as a result of stock splits, stock dividends, or similar transactions.
(5) Pursuant to Rule 457(i), no separate registration
fee is required for the common stock underlying the convertible preferred stock because the common stock is being registered on
the same registration statement as the convertible preferred stock.
Pursuant to Rule 429 under the Securities
Act of 1933, the prospectus included in this Registration Statement is a combined prospectus and also relates to (i) 33,550,000
shares of common stock previously registered under the Registrant's Registration Statement on Form SB-2 (File No. 333-133182);
(ii) 6,050,000 shares of common stock previously registered under the Registrant's Registration Statement on Form SB-2 (File
No. 333-142556), (iii) 1,089,913 shares of common stock previously registered under the Registrant's Registration Statement
on Form SB-2 on Form S-1 (File No. 333-149015), and (iv) 5,000 units, 1,250,000 shares of Series A Convertible Preferred Stock
and warrants to purchase 25,000,000 shares of common stock previously registered under the Registrant's Registration Statement
on Form S-1 (File No. 333-162712). Accordingly, this Registration Statement, which is a new registration statement, also constitutes
Post-Effective Amendment No. 2 to Registration Statement No. 333-133182, Post-Effective Amendment No. 2 to Registration Statement
No. 333-142556, Post-Effective Amendment No. 2 to Registration Statement No. 333-149015 and Post-Effective Amendment No. 1 to
Registration Statement No. 333-162712, which post-effective amendments shall hereafter become effective concurrently with the
effectiveness of this Registration Statement and in accordance with Section 8(c) of the Securities Act of 1933. If securities
previously registered under Registration Statement No. 333-133182, Registration Statement No. 333-142556, Registration Statement
No. 333-149015 and Registration Statement No. 333-162712 are offered and sold before the effective date of this Registration Statement,
the amount of previously registered securities so sold will not be included in the prospectus hereunder.
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
2
Explanatory Note
InsPro Technologies
Corporation (the "Company") previously filed a Registration Statement on Form SB-2 (File No. 333-133 182) with the
U.S. Securities and Exchange Commission (the "Commission") on April 10, 2006, which was declared effective on July
7, 2006 (the "2006 Prior Registration Statement"). The 2006 Prior Registration Statement registered up to 33,550,000
shares of our common stock for resale by the selling stockholders named therein, including 8,650,000 shares of our common stock
issuable upon the exercise of warrants held by such selling stockholders.
The Company previously
filed a Registration Statement on Form SB-2 (File No. 333-142556) with the Commission on May 2, 2007, which was declared effective
on June 1, 2007 (the "2007 Prior Registration Statement"). The 2007 Prior Registration Statement registered up to
6,050,000 shares of our common stock for resale by the selling stockholders named therein, including 2,000,000 shares of our common
stock issuable upon the exercise of warrants held by such selling stockholders.
The Company previously
filed a Registration Statement on Form SB-2 on Form S-l (File No. 333-149015) with the Commission on February 1, 2008, which was
declared effective on April 22, 2008 (the "2008 Prior Registration Statement"). The 2008 Prior Registration Statement
registered up to 739,913 shares of our common stock for resale by the selling stockholders named therein, including 350,000 shares
of our common stock issuable upon the exercise of warrants held by such selling stockholders.
The Company previously
filed a Registration Statement on Form S-l (File No. 333-162712) with the Commission on January 14, 2010, which was declared effective
on January 22, 2010 (the "2010 Prior Registration Statement", and together with the 2006 Prior Registration Statement,
2007 Prior Registration Statement and 2008 Prior Registration Statement, the "Prior Registration Statements"). The
2010 Prior Registration Statement registered up to 5,000 units, 1,250,000 shares of Series A Convertible Preferred Stock and warrants
to purchase 25,000,000 shares of common stock. Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included
in the 2010 Prior Registration Statement was a combined prospectus and also related to relates to 33,550,000 shares of common
stock registered under the 2006 Prior Registration Statement, 6,050,000 shares of common stock registered under the 2007 Prior
Registration Statement and 1,089,913 shares of common stock registered under the 2008 Prior Registration Statement. Accordingly,
the 2010 Prior Registration Statement also constituted Post-Effective Amendment No. 1 to the 2006 Prior Registration Statement,
Post-Effective Amendment No. 1 to the 2007 Prior Registration Statement and Post-Effective Amendment No. 1 to the 2008 Prior Registration
Statement.
Pursuant to Rule 429
under the Securities Act of 1933, the prospectus included in this Registration Statement is also a combined prospectus and also
relates to 33,550,000 shares of common stock registered under the 2006 Prior Registration Statement, 6,050,000 shares of common
stock registered under the 2007 Prior Registration Statement, 1,089,913 shares of common stock registered under the 2008 Prior
Registration Statement, and the 5,000 units, 1,250,000 shares of Series A Convertible Preferred Stock and warrants to purchase
25,000,000 shares of common stock registered under the 2010 Prior Registration Statement. Accordingly, this Registration Statement,
which is a new registration statement, also constitutes Post-Effective Amendment No. 2 to the 2006 Prior Registration Statement,
Post-Effective Amendment No. 2 to the 2007 Prior Registration Statement, Post-Effective Amendment No. 2 to the 2008 Prior Registration
Statement and Post-Effective Amendment No. 1 to the 2010 Prior Registration Statement and is being filed to, among other things:
(i) include audited financial statements for our fiscal year ended December 31, 2011 and to reflect additional information disclosed
in our Annual Report on Form 10-K (the "Annual Report") for our fiscal year ended December 31, 2011, filed with the
Commission on March 31, 2012; (ii) include unaudited interim financial statements for our three and nine months ended September
30, 2012 and to reflect additional information disclosed in our Quarterly Reports on Form l0-Q and our Current Reports on Form
8-K filed with the Commission subsequent to our Annual Report.
Accordingly, this
Registration Statement on Form S-l (i) carries forward from the Prior Registration Statements an aggregate of (A) 40,689,913 shares
of our common stock, which includes 11,000,000 shares of our common stock issuable upon the exercise of warrants, held by certain
of the named selling stockholders, and (B) 5,000 units, 1,250,000 shares of our Series A Convertible Preferred Stock and 25,000,000
warrants to purchase shares of our common stock, and (ii) registers an additional 2,500 Units, 832,500 shares of our Series B
Convertible Preferred Stock and warrants to purchase 8,325,000 shares of our common stock which have not previously been registered.
All filing fees payable in connection with the initial filing of the Prior Registration Statements were previously paid at the
time of the initial filing of the Prior Registration Statements. A registration fee of $341.00 in respect of the 832,500 shares
of our Series B Convertible Preferred Stock and warrants to purchase 8,325,000 shares of our common stock being registered in
this Registration Statement on Form S-l is being paid concurrently with the filing of this Registration Statement on Form S-l.
3
The information in this prospectus
is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
Subject to Completion	December 31, 2012
INSPRO TECHNOLOGIES CORPORATION
Up to 2,500 Units, 832,500 Shares
of Preferred Stock and
Warrants to Purchase 8,325,000 Shares of Common Stock
Issuable Upon Exercise of Rights to Subscribe for such Shares and Warrants
We are distributing,
at no charge to the holders of our capital stock, non-transferable subscription rights to subscribe for units, which we refer
to throughout this prospectus as Units, consisting of 333 shares of our Series B Convertible Preferred Stock and a five-year warrant
to purchase 3,330 additional shares of our common stock at an exercise price of $0.15 per share. Our stockholders will receive
one subscription right for every 53,155 shares of our common stock, 2,660 shares of our Series A Convertible Preferred Stock held
and 2,665 shares of our Series B Convertible Preferred Stock held of record as of 5:00 p.m., New York City time, on ___________,
2013, the record date. Pursuant to the terms of this offering, the rights may only be exercised for a maximum of 2,500 Units,
or $2.5 million of gross subscription proceeds.
Each subscription
right entitles the holder to subscribe for one Unit at the subscription price of $999.00 per Unit, which we refer to as the basic
subscription right. In addition, rights holders who fully exercise their basic subscription rights will be entitled, subject to
limitations, to subscribe for additional Units that remain unsubscribed as a result of any unexercised basic subscription rights,
which we refer to as the over-subscription right, at the subscription price of $999.00 per Unit.
There is no minimum
number of Units you must purchase, but you may not purchase fractional Units. When determining the number of subscription rights
you will receive, divide the number of shares of our common stock you own by 53,155, the number of shares of our Series A Convertible
Preferred Stock you own by 2,660 and the number of shares of our Series B Convertible Preferred Stock you own by 2,665 and round
down the sum of those amounts to the next whole number. For example, if you own 100,000 shares of our common stock, 10,000 shares
of our Series A Convertible Preferred Stock and 10,000 shares of our Series B Convertible Preferred Stock, you will receive nine
subscription rights (100,000 shares of common stock divided by 53,155 = 1.88, 10,000 shares of Series A Convertible Preferred
Stock divided by 2,660 = 3.76, 10,000 shares of Series B Convertible Preferred Stock divided by 2,665 = 3.77, which sum = 9.41,
rounded down to nine (9) subscription rights, the next whole number), which will entitle you to subscribe for up to nine Units
under your basic subscription privilege.
This rights offering
was designed to give all of the holders of our capital stock the opportunity to participate in an equity investment in InsPro
Technologies Corporation on substantially the same economic terms as our last private placement in November 2012.
The subscription rights
will expire if they are not exercised by 5:00 p.m., New York City time, on _________, 2013, unless we extend the rights offering
period. Our board of directors may cancel the rights offering at any time prior to the expiration of the rights offering for any
reason and may extend or amend the rights offering for any reason. In the event we cancel the rights offering, all subscription
payments received by us will be returned, without interest or penalty, as soon as practicable.
4
The subscription rights
may not be sold, transferred or assigned, and will not be listed for trading on any stock exchange or on the Over-the-Counter
Bulletin Board, the OTCBB.
You should carefully
consider whether to exercise your subscription rights before the expiration date. All exercises of subscription rights are irrevocable.
This is not an underwritten offering. The Units are being offered directly by us without the services of an underwriter or selling
agent. Our board of directors is making no recommendation regarding your exercise of the subscription rights.
Our common stock is
quoted on the OTCBB under the symbol "ITCC.OB."
The average of the
bid and asked prices of our common stock on the OTCBB on December 28, 2012 was $0.075 per share.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON
PAGE 18.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is           , 2013
5
Table
of Contents
Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
7
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
8
PROSPECTUS SUMMARY
15
RISK FACTORS
18
THE RIGHTS OFFERING
28
USE OF PROCEEDS
36
DILUTION
36
CAPITALIZATION
37
DESCRIPTION OF SECURITIES
37
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
39
BUSINESS
40
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
44
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
55
EXECUTIVE COMPENSATION
58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
63
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
66
PLAN OF DISTRIBUTION
67
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
67
EXPERTS
73
TRANSFER AGENT AND REGISTRAR
73
LEGAL MATTERS
73
WHERE YOU CAN FIND MORE INFORMATION
73
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
73
FINANCIAL STATEMENTS
F-1
You should rely only
on the information contained in this prospectus. We have not authorized anyone to provide you with information different from
the information contained in this prospectus. We will not make an offer to sell these securities in any jurisdiction where offers
and sales are not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus,
regardless of when this prospectus is delivered or when any sale of our common stock occurs. All dollar amounts in this prospectus
are in U.S. dollars unless otherwise stated.
In this prospectus,
unless the context specifically indicates otherwise, all references to "the Company," "we," "us,"
and "our" refer to InsPro Technologies Corporation and its subsidiaries.
6
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Certain of the statements
contained in this prospectus, including in the sections entitled "Questions and Answers About the Rights Offering,"
"Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" 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,
market interest rates, regulatory changes, customer defaults or insolvencies, litigation, acquisition of businesses that do not
perform as we expect or that are difficult for us to integrate or control, adverse resolution of any contract or other disputes
with customers, 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 prospectus, 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 prospectus 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.
7
QUESTIONS AND ANSWERS ABOUT THE RIGHTS
OFFERING
The following are
examples of what we anticipate will be common questions about the rights offering. The answers are based on selected information
included elsewhere in this prospectus. The following questions and answers do not contain all of the information that may be important
to you and may not address all of the questions that you may have about the rights offering. This prospectus contains more detailed
descriptions of the terms and conditions of the rights offering and provides additional information about us and our business,
including potential risks related to the rights offering, the Units, and our business.
What is the rights offering?
We are distributing,
at no charge, to holders of our shares of capital stock, non-transferable subscription rights to subscribe for Units consisting
of 333 shares of our Series B Convertible Preferred Stock and a five-year warrant to purchase 3,330 additional shares of our common
stock at an exercise price of $0.15 per share. You will receive one subscription right for every 53,155 shares of our common stock,
2,660 shares of Series A Convertible Preferred Stock and 2,665 shares of Series B Convertible Preferred Stock held of record by
you as of 5:00 p.m., New York City time, on _________, 2013, the record date. Each subscription right entitles the holder to a
basic subscription right and an over-subscription privilege, which are described below. The shares of preferred stock and the
warrant to be issued as components of the Units in the rights offering do not currently trade on the OTCBB or on any other exchange,
and are only transferable to the extent permitted in the instruments governing such securities.
What is the basic subscription right?
The basic subscription
right gives our stockholders the opportunity to purchase Units at a subscription price of $999.00 per Unit for each 53,155 shares
of common stock, 2,660 shares of Series A Convertible Preferred Stock and 2,665 shares of Series B Convertible Preferred Stock
you own. We have granted to you, as a stockholder of record on the record date, one subscription right for each 53,155 shares
of our common stock, 2,660 shares of Series A Convertible Preferred Stock and 2,665 shares of Series B Convertible Preferred Stock
you owned at that time.
There is no minimum
number of Units you must purchase, but you may not purchase fractional Units. When determining the number of subscription rights
you will receive, divide the number of shares of our common stock you own by 53,155, the number of shares of Series A Convertible
Preferred Stock you own by 2,660 and the number of shares of Series B Convertible Preferred Stock you own by 2,665, and round
down the sum of those amounts to the next whole number. For example, if you own 100,000 shares of our common stock, 10,000 shares
of our Series A Convertible Preferred Stock and 10,000 shares of our Series B Convertible Preferred Stock, you will receive nine
subscription rights (100,000 shares of common stock divided by 53,155 = 1.88, 10,000 shares of Series A Convertible Preferred
Stock divided by 2,660 = 3.76, 10,000 shares of Series B Convertible Preferred Stock divided by 2,665 = 3.77, which sum = 9.41,
rounded down to nine (9) subscription rights, the next whole number), which will entitle you to subscribe for up to nine Units
under your basic subscription privilege.
You may exercise all
or a portion of your basic subscription right, or you may choose not to exercise any subscription rights at all. However, if you
exercise less than your full basic subscription right, you will not be entitled to purchase shares under your over-subscription
privilege.
If you hold an InsPro
Technologies Corporation stock certificate, the number of Units you may purchase pursuant to your basic subscription right is
indicated on the enclosed rights certificate. If you hold your shares in the name of a broker, dealer, custodian bank or other
nominee who uses the services of the Depository Trust Company (DTC), you will not receive a rights certificate. Instead, DTC will
issue one subscription right to your nominee record holder for each 53,155 shares of our common stock, 2,660 shares of Series
A Convertible Preferred Stock and 2,665 shares of Series B Convertible Preferred Stock that you own at the record date. If you
are not contacted by your nominee, you should contact your nominee as soon as possible.
8
What is the over-subscription privilege?
In the event that
you purchase all of the Units available to you pursuant to your basic subscription right, you may also choose to purchase any
Units that are not purchased by our other stockholders through the exercise of their basic subscription rights. You should indicate
on your rights certificate, or the form provided by your nominee if your shares are held in the name of a nominee, how many additional
Units you would like to purchase pursuant to your over-subscription privilege.
If sufficient Units
are available, we will seek to honor your over-subscription request in full. If, however, over-subscription requests exceed the
number of Units available, we will allocate the available Units pro rata among the stockholders exercising the over-subscription
privilege in proportion to the number of shares of capital stock owned by such stockholder on the record date, relative to the
number of shares owned on the record date by all stockholders exercising the over-subscription privilege. If this pro rata allocation
results in any stockholder receiving a greater number of Units than the stockholder subscribed for pursuant to the exercise of
the over-subscription privilege, then such stockholder will be allocated only that number of Units for which the stockholder oversubscribed,
and the remaining Units will be allocated among all other stockholders exercising the over-subscription privilege on the same
pro rata basis described above. The proration process will be repeated until all Units have been allocated.
In order to properly
exercise your over-subscription privilege, you must deliver the subscription payment related to your over-subscription privilege
prior to the expiration of the rights offering. Because we will not know the total number of unsubscribed Units prior to the expiration
of the rights offering, if you wish to maximize the number of Units you purchase pursuant to your over-subscription privilege,
you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of Units that may
be available to you (i.e., for the maximum number of Units available to you, assuming you exercise all of your basic subscription
rights and are allotted the full amount of your over-subscription). See "The Rights Offering — The Subscription Rights
— Over-Subscription Privilege."
Any excess subscription
payments received by us will be returned, without interest or penalty, as soon as practicable.
Why are we conducting the rights offering?
We are conducting
the rights offering for the primary purpose of providing all of the holders of our capital stock the opportunity to participate
in an equity investment in InsPro Technologies Corporation on substantially the same economic terms as our last private placement
in November 2012 and secondarily of raising equity capital to improve our capital position, to inject additional capital into
InsPro Technologies Corporation and to retain the remainder of any proceeds at InsPro Technologies Corporation for general corporate
purposes. See "Use of Proceeds."
This rights offering,
including the composition and price of the Units, was designed to give all of the holders of our capital stock the opportunity
to participate in an equity investment in InsPro Technologies Corporation on substantially the same economic terms as our last
private placement in November 2012.
How was the $999.00 per Unit subscription price
determined?
The $999.00 per Unit
subscription price was determined by our board of directors based on the per share value of the Series B Convertible Preferred
Stock and warrants (considered in the aggregate) purchased by investors in our last private placement in November 2012. In November
2012, we sold units, consisting of one share of our Series B Convertible Preferred Stock (each share of which is convertible,
at the sole option of the holder, into 20 shares of our common stock) and one five-year warrant to purchase 10 shares of our common
stock, at a per unit price of $3.00. We sold a total of 499,999 units in that offering for an aggregate purchase price of $1.5
million.
9
In determining the
subscription price, our board of directors considered the overall economic value offered to investors in InsPro Technologies Corporation
in the last private placement. If an investor had invested in the last private placement, for every $999.00 invested, such investor
would have received 333 shares of Series B Convertible Preferred Stock and warrants to purchase 3,330 additional shares of our
common stock at an exercise price of $0.15 per share. As a result, the Units offered in this rights offering consist of 333 shares
of our Series B Convertible Preferred Stock and a warrant to purchase 3,330 shares of our common stock at a price per Unit of
$999.00.
We did not seek or
obtain an opinion of financial advisors in establishing the subscription price. The subscription price will not necessarily be
related to our book value, tangible book value, net worth or any other established criteria of fair value.
What are the material terms of the Series B Convertible
Preferred Stock offered in this rights offering?
Each share of Series
B Convertible Preferred Stock offered in this rights offering is convertible, at the sole discretion of each holder of preferred
stock, into 20 shares of common stock, subject to certain adjustments. The holders of shares of our Series B Convertible Preferred
Stock are entitled to vote, with respect to any question upon which holders of our common stock are entitled to vote, together
with the holders of common stock as one class on an as-converted basis. At such time, if any, as our board of directors declares
a dividend or distribution on the common stock, the holders of preferred stock shall be entitled to receive, for each share of
Series B Convertible Preferred Stock held by them, a dividend or distribution in an amount equal to what such holder of preferred
stock would receive if their shares were converted into shares of common stock. We do not currently intend to pay any cash dividends
to the holders of shares of our common stock.
In addition, upon
the liquidation, sale or merger of InsPro Technologies Corporation, each share of our Series B Convertible Preferred Stock is
entitled to receive an amount equal to the greater of (A) a liquidation preference equal to the preferred stock original issue
price, subject to certain customary adjustments, or (ii) the amount such preferred stock would receive if it participated pari
passu with the holders of our common stock on an as-converted basis. For so long as any shares of Series B Convertible Preferred
Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of preferred stock is required
to approve (Y) any amendment to our certificate of incorporation or bylaws that would adversely alter the voting powers, preferences
or special rights of the Series B Convertible Preferred Stock or (Z) any amendment to our certificate of incorporation to create
any shares of capital stock that rank senior to the Series B Convertible Preferred Stock. In addition to the voting rights described
above, for so long as 1,000,000 shares of Series B Convertible Preferred Stock are outstanding, the vote or consent of the holders
of at least two-thirds of the preferred stock is required to effect or validate any merger, sale of substantially all of the assets
of InsPro Technologies Corporation or other fundamental transaction, unless such transaction, when consummated, will provide the
holders of preferred stock with an amount per share equal to the preferred stock original issue price plus any declared but unpaid
dividends.
What are the material terms of the warrants offered
in this rights offering?
The warrants that
we are offering in this rights offering are in substantially similar form to those warrants purchased by investors in the last
private placement in November 2012. Each warrant issued as a component of the Units will be a five-year warrant to purchase 3,330
shares of our common stock at an exercise price of $0.15 per share, subject to our right to call the warrant under certain conditions.
The warrants include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per share during
the first two years following the date of issuance of the warrants, subject to customary exceptions.
Am I required to exercise all of the subscription
rights I receive in the rights offering?
No. You may exercise
any number of your subscription rights, or you may choose not to exercise any subscription rights. If you do not exercise any
subscription rights, the number of shares of our common stock you own will not change. However, if you choose not to exercise
your subscription rights, your ownership interest in InsPro Technologies Corporation may be diluted by other stockholder purchases
(to the extent we receive any subscriptions in this rights offering). In addition, if you do not exercise your basic subscription
right in full, you will not be entitled to participate in the over-subscription privilege. See "Risk Factors — If
you do not exercise your subscription rights, your percentage ownership in InsPro Technologies Corporation will be diluted."
10
How soon must I act to exercise my subscription
rights?
If you received a
rights certificate and elect to exercise any or all of your subscription rights, we must receive your completed and signed rights
certificate and payments prior to the expiration of the rights offering, which is _________, 2013, at 5:00 p.m., Eastern Time.
If you hold your shares in the name of a broker, dealer, custodian bank or other nominee, your nominee may establish a deadline
prior to 5:00 p.m. Eastern Time, on _________, 2013 by which you must provide it with your instructions to exercise your subscription
rights. Although our board of directors may, in its discretion, extend the expiration of the rights offering, we currently do
not intend to do so. Our board of directors may cancel or amend the rights offering at any time. In the event that the rights
offering is cancelled, all subscription payments received will be returned, without interest or penalty, as soon as practicable.
Although we will make
reasonable attempts to provide this prospectus to our stockholders, the rights offering and all subscription rights will expire
at 5:00 p.m., Eastern Time on _________, 2013, whether or not we have been able to locate each person entitled to subscription
rights.
May I transfer my subscription rights?
No. You may not sell,
transfer or assign your subscription rights to anyone. Subscription rights will not be listed for trading on the OTCBB or any
other stock exchange or market. Rights certificates may only be completed by the stockholder who receives the certificate.
Are we requiring a minimum subscription to complete
the rights offering?
No. There is no individual
minimum purchase requirement in the rights offering and we are not requiring a minimum subscription to complete the rights offering.
However, because we are not issuing fractional Units, you must own at least 53,155 shares of our common stock, 2,660 shares of
our Series A Convertible Preferred Stock or 2,665 shares of our Series B Convertible Preferred Stock as of the record date in
order to subscribe for one Unit in the rights offering.
In addition, our board
of directors reserves the right to cancel the rights offering for any reason.
Can the board of directors cancel, amend or extend
the rights offering?
Yes. Our board of
directors may decide to cancel, amend or terminate the rights offering at any time before the expiration of the rights offering
and for any reason. If our board of directors cancels or terminates the rights offering, any money received from subscribing stockholders
will be returned, without interest or penalty, as soon as practicable. We also reserve the right to amend or modify the terms
of the rights offering. We further have the right to extend the rights offering and the time for exercising your subscription
rights, although we do not presently intend to do so.
Has our board of directors made a recommendation
to our stockholders regarding the rights offering?
No. Our board of directors
is making no recommendation regarding your exercise of the subscription rights. Stockholders who exercise subscription rights
risk investment loss on new money invested. There is currently no public market for our shares of Series B Convertible Preferred
Stock. You are urged to make your decision based on your own assessment of our business and financial condition, our prospects
for the future, the terms of the rights offering and the information contained in, or incorporated by reference into, this prospectus.
See "Risk Factors" for a discussion of some of the risks involved in investing in our common stock.
11
How do I exercise my subscription rights if I own
shares in certificate form?
If you hold an InsPro
Technologies Corporation stock certificate and you wish to participate in the rights offering, you must take the following steps:
·
deliver payment
                                                                                                              to us before 5:00
                                                                                                              p.m., Eastern Time,
                                                                                                              on __________, 2013;
                                                                                                              and
·
deliver a properly
                                                                                                              completed and signed
                                                                                                              rights certificate
                                                                                                              to us before 5:00
                                                                                                              p.m., Eastern Time,
                                                                                                              on __________, 2013.
In certain cases, you may be required
to provide additional documentation or signature guarantees.
Please follow the
delivery instructions on the rights certificate. You are solely responsible for completing delivery to us of your subscription
documents, rights certificate and payment. We urge you to allow sufficient time for delivery of your subscription materials to
us so that they are received by us by 5:00 p.m., Eastern Time, on __________, 2013.
WE WILL NOT ACCEPT ANY SUBSCRIPTIONS THAT
WE RECEIVE AFTER THIS TIME.
If you send a payment
that is insufficient to purchase the number of Units you request, or if the number of Units you request is not specified in the
forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount
of the payment received, subject to the availability of Units under the over-subscription privilege and the elimination of fractional
Units.
What should I do if I want to participate in the
rights offering, but my shares are held in the name of a broker, dealer, custodian bank or other nominee?
If you hold your shares
of common stock through a broker, dealer, custodian bank or other nominee, then your nominee is the record holder of the shares
you own. The record holder must exercise the subscription rights on your behalf. If you wish to purchase Units through the rights
offering, you should contact your broker, dealer, custodian bank or nominee as soon as possible. Please follow the instructions
of your nominee. Your nominee may establish a deadline that may be before the expiration date that we have established for the
rights offering.
When will I receive my new shares and warrants?
If you purchase Units
in the rights offering you will receive your new shares and warrants as soon as practicable after the closing of the rights offering.
After I send in my payment and rights certificate,
may I cancel my exercise of subscription rights?
No. All exercises
of subscription rights are irrevocable unless the rights offering is terminated, even if you later learn information that you
consider to be unfavorable to the exercise of your subscription rights. You should not exercise your subscription rights unless
you are certain that you wish to purchase Units in the rights offering.
Are there any conditions to completing the rights
offering?
No, there are no conditions
to completion of the rights offering.
What effects will the rights offering have on our
outstanding Series B Convertible Preferred Stock and warrants?
As of December 31,
2012, we had 3,297,378 shares of Series B Convertible Preferred Stock and 92,020,447 warrants to purchase shares of common stock
issued and outstanding. The number of shares of our Series B Convertible Preferred Stock and warrants that we will issue in this
rights offering through the exercise of subscription rights will depend on the number of Units that are subscribed for in the
rights offering. We could, depending on the number of Units that are subscribed for in the offering, have a maximum of 4,129,878
shares of Series B Convertible Preferred Stock and warrants to purchase 100,345,447 shares of our common stock outstanding after
completion of the rights offering.
12
The issuance of Units
in the rights offering will dilute, and thereby reduce, your proportionate ownership in InsPro Technologies Corporation. If you
fully exercise your basic subscription right and a certain level of your over-subscription privilege, your ownership interest
will be diluted to a lesser extent.
How much will InsPro Technologies Corporation receive
from the rights offering?
If all of the subscription
rights (including all over-subscription privileges) are exercised in full by our stockholders, we expect the gross proceeds from
the rights offering to be approximately $2.5 million. If no subscription rights are exercised by our stockholders, we would receive
no proceeds from the rights offering. We are offering shares in the rights offering to stockholders with no individual minimum
purchase requirement.
Are there risks in exercising my subscription rights?
Yes. The exercise
of your subscription rights involves risks. Exercising your subscription rights involves the purchase of additional shares of
our Series B Convertible Preferred Stock and warrants to purchase our common stock and should be considered as carefully as you
would consider any other equity investment. Among other things, you should carefully consider the risks described under the heading
"Risk Factors" in this prospectus and in the documents incorporated by reference in this prospectus.
If the rights offering is not completed, will my
subscription payment be refunded to me?
Yes. We will hold
all funds we receive in a segregated bank account until completion of the rights offering. If the rights offering is not completed,
all subscription payments received by us will be returned, without interest or penalty, as soon as practicable. If you own shares
in "street name," it may take longer for you to receive your subscription payment because we will return payments
through the record holder of your shares.
What fees or charges apply if I purchase Units
in the rights offering?
We are not charging
any fee or sales commission to issue subscription rights to you or to issue shares or warrants to you if you exercise your subscription
rights. If you exercise your subscription rights through a broker, dealer, custodian bank or other nominee, you are responsible
for paying any fees your record holder may charge you.
What are the material U.S. federal income tax consequences
of exercising my subscription rights?
It is the opinion
of our counsel, Morgan, Lewis & Bockius LLP, that you should not recognize income or loss for U.S. federal income tax purposes
in connection with the receipt or exercise of subscription rights in the rights offering. You should consult your tax advisor
as to your particular tax consequences resulting from the rights offering. For a detailed discussion, see "Material U.S.
Federal Income Tax Considerations."
To whom should I send my forms and payment?
If your shares are
held in the name of a broker, dealer or other nominee, then you should send your subscription documents, rights certificate and
subscription payment to that record holder. If you are the record holder, then you should send your subscription documents, rights
certificate and subscription payment by hand delivery, first class mail or courier service to:
InsPro Technologies Corporation
150 N. Radnor-Chester Road
Suite B-101
Radnor, Pennsylvania 19087
Attn: Francis L. Gillan III
13
You are solely responsible
for completing delivery to us of your subscription documents, rights certificate and payment. We urge you to allow sufficient
time for delivery of your subscription materials to us.
Whom should I contact if I have other questions?
If you have any questions
regarding InsPro Technologies Corporation or the rights offering, please contact Francis L. Gillan III at (484) 654-2200. You
may also contact us with questions by electronic mail at
rightsoffering@inspro.com
.
If you have any questions
regarding completing a rights certificate or submitting payment in the rights offering, please contact Francis L. Gillan III at
(484) 654-2200 or by electronic mail at
rightsoffering@inspro.com
.
14
PROSPECTUS SUMMARY
This summary highlights
selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information
that you should consider before investing in our securities. You should read the entire prospectus carefully, including the "Risk
Factors" section, before making a decision to invest in our securities.
Our Business
We are a technology
company that provides software applications for use by insurance administrators in the insurance industry. Our business focuses
primarily on our InsPro Enterprise software application.
We acquired Atiam
Technologies, L.P. on October 1, 2007. This entity, which changed its name to InsPro Technologies, LLC on May 14, 2009, developed,
sells and supports our InsPro Enterprise software application. InsPro Enterprise is a comprehensive, web-based insurance administration
software application, which was introduced by Atiam Technologies, L.P. (now our InsPro Technologies, LLC subsidiary) in 2004.
InsPro Enterprise clients include insurance carriers and third party administrators. We market InsPro Enterprise as a licensed
software application, and we realize revenue from the sale of the software licenses, application service provider fees, software
maintenance fees and consulting and implementation services.
During 2005 through
October 1, 2007 our operations were primarily that of our former Telesales and Insurint businesses. We effectively sold our former
Telesales business in 2009 and our former Insurint business in 2010. Our former Telesales and Insurint businesses are now classified
as part of our discontinued operations.
Our common stock has
been quoted on the OTCBB since December 6, 2010 under the symbol ITCC.OB and from December 13, 2005 until December 3, 2010 under
the symbol HBDT.OB.
Summary of this Rights Offering
Securities Offered
We are distributing to you, at no charge, one non-transferable
    subscription right for each 53,155 shares of our common stock, 2,660 shares of Series A Convertible Preferred Stock and 2,665
    shares of Series B Convertible Preferred Stock that you owned as of 5:00 p.m., Eastern Time, on ________, 2013, 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 your behalf, as a beneficial owner of such shares. If the rights offering is fully subscribed, we expect the gross
    proceeds from the rights offering to be approximately $2.5 million. This rights offering was designed to give all of the holders
    of our capital stock the opportunity to participate in an equity investment in InsPro Technologies Corporation on the same
    economic terms as the investment made by investors in our last private placement in November 2012.
Basic Subscription Right
The basic subscription right will entitle you to purchase one unit at
    a subscription price of $999.00.  A unit consists of 333 shares of our Series B Convertible Preferred Stock and a five-year
    warrant to purchase an additional 3,330 shares of our common stock at an exercise price of $0.15 per share.  We refer
    to these units throughout this prospectus as "Units."
There is no minimum number of Units you must purchase, but you may not
    purchase fractional Units.  When determining the number of subscription rights you will receive, divide the number of
    shares of our common stock you own by 53,155, the number of shares of Series A Convertible Preferred Stock you own by 2,660
    and the number of shares of Series B Convertible Preferred Stock you own by 2,665, and round down the sum of those amounts
    to the next whole number.  For example, if you own 100,000 shares of our common stock, 10,000 shares of our Series A
    Convertible Preferred Stock and 10,000 shares of our Series B Convertible Preferred Stock, you will receive 9 subscription
    rights (100,000 shares of common stock divided by 53,155 = 1.88, 10,000 shares of Series A Convertible Preferred Stock divided
    by 2,660 = 3.76, and 10,000 shares of Series B Convertible Preferred Stock divided by 2,665 = 3.77, which sum = 9.41, rounded
    down to 9 subscription rights, the next whole number), which will entitle you to subscribe for up to 9 Units under your basic
    subscription privilege.
15
Over-Subscription Privilege
In the event that you purchase all of the Units available
    to you pursuant to your basic subscription right, you may also choose to subscribe for a portion of any Units that are not
    purchased by our stockholders through the exercise of their basic subscription rights. You may subscribe for these Units pursuant
    to your over-subscription privilege, subject to the limitations described below.
Subscription Price
$999.00 per Unit, payable in cash. To be effective, any payment related
    to the exercise of a subscription right must clear prior to the expiration of the rights offering.
Record Date
5:00 p.m., Eastern Time, on _______, 2013.
Expiration of the Rights Offering
5:00 p.m., Eastern Time, on _______, 2013.
Use of Proceeds
We intend to use the proceeds of the rights offering to improve our
    capital position and for general corporate purposes.
Non-Transferability of Rights
The subscription rights may not be sold, transferred or assigned and
    will not be listed for trading on the OTCBB or on any other stock exchange or market.
No Revocation
All exercises of subscription rights are irrevocable, even if you later
    learn of information that you consider to be unfavorable to the exercise of your subscription rights. You should not exercise
    your subscription rights unless you are certain that you wish to purchase additional Units at a subscription price of $999.00
    per full Unit.
Material U.S. Federal
Income Tax Consequences
It is the opinion of our counsel, Morgan, Lewis & Bockius LLP, that
    you should not recognize income or loss for U.S. federal income tax purposes in connection with the receipt or exercise of
    subscription rights in the rights offering.  You should consult your own tax advisor as to the tax consequences to you
    of the receipt, exercise or lapse of the subscription rights in light of your particular circumstances.
Extension, Cancellation and Amendment
Although we do not presently intend to do so, we have the option to
    extend the rights offering and the period for exercising your subscription rights. Our board of directors may cancel the rights
    offering at any time prior to the expiration date of the rights offering for any reason. In the event that the rights offering
    is cancelled, all subscription payments received by us will be returned, without interest or penalty, as soon as practicable.
    We also reserve the right to amend or modify the terms of the rights offering at any time.
Procedures for Exercising Rights
To exercise your subscription rights, you must take the following steps:
16
·
If you are a registered holder of our common stock, you
    must deliver payment and a properly completed rights certificate to us so that we receive these items before 5:00 p.m., Eastern
    Time, on _______, 2013. You may deliver the documents and payments by hand delivery, first class mail or courier service.
    If first class mail is used for this purpose, we recommend using registered mail, properly insured, with return receipt requested.
·
If you are a beneficial owner of shares that are registered in the name
    of a broker, dealer, custodian bank or other nominee, or if you would rather an institution conduct the transaction on your
    behalf, you should instruct your broker, dealer, custodian bank or other nominee to exercise your subscription rights on your
    behalf. Please follow the instructions of your nominee, who may require that you meet a deadline earlier than 5:00 p.m., Eastern
    Time, on _______, 2013.
Shares Outstanding
Before the Rights Offering
3,297,378 shares of our Series B Convertible Preferred Stock
    and warrants to purchase 92,020,447 shares of our common stock were outstanding as of December 31, 2012.
Shares Outstanding After Completion of the Rights Offering
Assuming all Units are sold in the rights offering, we expect
    approximately 4,129,878 shares of our Series B Convertible Preferred Stock and warrants to purchase 100,345,447 shares of
    our common stock will be outstanding immediately after completion of the rights offering.
Fees and Expenses
We will pay the expenses related to the rights offering.
The Over-the-Counter Bulletin Board
Our shares of common stock are currently listed for trading
    on the OTCBB under the ticker symbol "ITCC.OB ."
Risk Factors
Before you exercise your subscription rights to purchase
    shares of our common stock, you should carefully consider risks described in the section entitled "Risk Factors,"
    beginning on page 18 of this prospectus.
Our Corporate Information
Our principal executive
offices are located at 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087. Our telephone number is (484) 654-2200.
Our website address is www.inspro.com. The information contained on our website is not incorporated by reference into, and does
not form any part of, this prospectus.
17
RISK FACTORS
Investing in our
securities involves significant risks. In addition to all of the other information contained in this prospectus, you should carefully
consider the risks and uncertainties described below before deciding to invest in our common stock and preferred stock. If any
of the following risks actually occur, they may materially harm our business, our financial condition or our results of operations.
In this event, the market price of our securities could decline and you could lose all or part of your investment.
Risks Related to the Rights Offering
If you do not exercise your subscription rights,
your percentage ownership in InsPro Technologies Corporation will be diluted.
Stockholders who do
not fully exercise their subscription rights should expect that they will, at the completion of this offering, own a smaller proportional
interest in our company than would otherwise be the case had they fully exercised their basic subscription and over-subscription
rights. In addition, the shares issuable upon the exercise of the warrants to be issued pursuant to this rights offering will
dilute the ownership interest of stockholders not participating in this offering or holders of warrants issued pursuant to this
offering who have not exercised them.
The subscription rights are not transferable, and
there is no market for the subscription rights.
You may not sell,
give away or otherwise transfer your subscription rights. The subscription rights are only transferable by operation of law. Because
the subscription rights are non-transferable, there is no market or other means for you to directly realize any value associated
with the subscription rights.
If we terminate this offering for any reason, we
will have no obligation other than to return subscription monies as soon as practicable.
We may decide, in
our sole discretion and for any reason, to cancel or terminate the rights offering at any time prior to the expiration date. If
this offering is cancelled or terminated, we will have no obligation with respect to subscription rights that have been exercised
except to return as soon as practicable, without interest, the subscription payments deposited with us. If we terminate this offering
and you have not exercised any subscription rights, such subscription rights will expire worthless.
The subscription price determined for this offering
is not an indication of the fair value of our common stock.
In determining the
subscription price, our board of directors considered the overall economic value offered to investors in InsPro Technologies Corporation
in our last private placement in November 2012. If an investor had invested in these last private placement, for every $999.00
invested, such investor would have received 333 shares of Series B Convertible Preferred Stock and warrants to purchase 3,330
additional shares of our common stock at an exercise price of $0.15 per share. As a result, the Units offered in this rights offering
consist of 333 shares of our Series B Convertible Preferred Stock and a warrant to purchase 3,330 shares of our common stock at
a price per Unit of $999.00.
We did not seek or
obtain an opinion of financial advisors in establishing the subscription price. The subscription price will not necessarily be
related to our book value, tangible book value, net worth or any other established criteria of fair value and may or may not be
considered the fair value of our common stock to be offered in the rights offering. You should not assume or expect that, after
the rights offering, our shares of common stock will trade at or above the equivalent component of the subscription price in any
given time period.
18
We will have broad discretion in the use of the
net proceeds from this offering and may not use the proceeds effectively.
Although we plan to
use the proceeds of this offering for general corporate purposes, including working capital, we will not be restricted to such
use and will have broad discretion in determining how the proceeds of this offering will be used. Our discretion is not substantially
limited by the uses set forth in this prospectus in the section entitled "Use of Proceeds." While our board of directors
believes the flexibility in application of the net proceeds is prudent, the broad discretion it affords entails increased risks
to the investors in this offering. Investors in this offering have no current basis to evaluate the possible merits or risks of
any application of the net proceeds of this offering. Our stockholders may not agree with the manner in which we choose to allocate
and spend the net proceeds.
If you do not act on a timely basis and follow
subscription instructions, your exercise of subscription rights may be rejected.
Holders of subscription
rights who desire to purchase Units in this offering must act on a timely basis to ensure that all required forms and payments
are actually received by us prior to 5:00 p.m., New York City time, on the expiration date, unless extended, unless delivery of
the subscription rights certificate is effected pursuant to the guaranteed delivery procedures as described below. If you are
a beneficial owner of shares of capital stock and you wish to exercise your subscription rights, you must act promptly to ensure
that your broker, dealer, custodian bank or other nominee acts for you and that all required forms and payments are actually received
by your broker, dealer, custodian bank or other nominee in sufficient time to deliver such forms and payments to us to exercise
the subscription rights granted in this offering that you beneficially own prior to 5:00 p.m., New York City time on the expiration
date, as may be extended, unless delivery of the subscription rights certificate is effected pursuant to the guaranteed delivery
procedures as described below. We will not be responsible if your broker, dealer, custodian bank or other nominee fails to ensure
that all required forms and payments are actually received by us prior to 5:00 p.m., New York City time, on the expiration date.
If you fail to complete
and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures
that apply to your exercise in this rights offering, we may, depending on the circumstances, reject your subscription or accept
it only to the extent of the payment received. We do not undertake to contact you concerning an incomplete or incorrect subscription
form or payment, nor are we under any obligation to correct such forms or payment. We have the sole discretion to determine whether
a subscription exercise properly follows the subscription procedures.
You may not receive all of the Units for which
you subscribe pursuant to the over-subscription privilege.
Holders who fully
exercise their basic subscription rights will be entitled to subscribe for an additional amount of Units that are not purchased
by our other holders through the exercise of their basic subscription rights. Over-subscription rights will be allocated pro-rata
among subscription rights holders who over-subscribed, based on the number of shares of capital stock owned by such holders on
the record date, relative to the number of shares owned on the record date by all stockholders exercising the over-subscription
privilege. You may not receive any or all of the amount of Units for which you over-subscribed. If the prorated amount of Units
allocated to you in connection with your over-subscription right is less than your over-subscription request, then the excess
funds held by us on your behalf will be returned to you, without interest, as soon as practicable after the rights offering has
expired and all prorating calculations and reductions contemplated by the terms of the rights offering have been effected, and
we will have no further obligations to you.
If you make payment of the subscription price by
uncertified check, your check may not clear in sufficient time to enable you to purchase Units in this rights offering.
Any uncertified check
used to pay for Units to be issued in this rights offering must clear prior to the expiration date of this rights offering, and
the clearing process may require five or more business days. If you choose to exercise your subscription rights, in whole or in
part, and to pay for Units by uncertified check and your check has not cleared prior to the expiration date of this rights offering,
you will not have satisfied the conditions to exercise your subscription rights and will not receive the Units you wish to purchase.
19
The receipt of subscription rights may be treated
as a taxable distribution to you.
It is the opinion
of our counsel, Morgan, Lewis & Bockius LLP, that the distribution of the subscription rights in this rights offering should
be a non-taxable distribution under Section 305(a) of the Internal Revenue Code of 1986, as amended, or the Code. Please see the
discussion on the "Material U.S. Federal Income Tax Considerations" below. This position is not binding on the Internal
Revenue Service, or the IRS, or the courts, however. If this rights offering is deemed to be part of a "disproportionate
distribution" under Section 305(b)(2) of the Code (or otherwise to be within one of the exceptions to Section 305(a) of
the Code set forth in Section 305(b) of the Code), your receipt of subscription rights in this offering may be treated as the
receipt of a taxable distribution to you equal to the fair market value of the subscription rights. Any such distribution would
be treated as dividend income to the extent of our current and accumulated earnings and profits, if any, with any excess being
treated as a return of capital to the extent thereof and then as capital gain. Each holder of capital stock is urged to consult
his, her or its own tax advisor with respect to the particular tax consequences of this rights offering.
Absence of a public trading market for the warrants
and shares of Series B Convertible Preferred Stock may limit the ability of a purchaser to resell the warrants and/or the shares
of Series B Convertible Preferred Stock.
There is no established
trading market for the warrants or the shares of our Series B Convertible Preferred Stock to be issued pursuant to this offering,
and such securities may not be widely distributed. There can be no assurance that a market will develop for the warrants or the
shares of Series B Convertible Preferred Stock. Even if a market for these securities does develop, the price of the warrants
and the Series B Convertible Preferred Stock may fluctuate and liquidity may be limited. If a market for these securities does
not develop, then purchasers of the warrants and the shares of Series B Convertible Preferred Stock may be unable to resell the
securities or sell them only at an unfavorable price for an extended period of time, if at all. Future trading prices of the warrants
and shares of Series B Convertible Preferred Stock will depend on many factors, including:
·
our operating
                                                                                                              performance and
                                                                                                              financial condition;
·
our ability
                                                                                                              to continue the
                                                                                                              effectiveness of
                                                                                                              the registration
                                                                                                              statement, of which
                                                                                                              this prospectus
                                                                                                              is a part, covering
                                                                                                              the warrants and
                                                                                                              shares of Series
                                                                                                              B Convertible Preferred
                                                                                                              Stock and the common
                                                                                                              stock issuable upon
                                                                                                              exercise or conversion
                                                                                                              of these securities;
·
the interest
                                                                                                              of securities dealers
                                                                                                              in making a market;
                                                                                                              and
·
the market for
                                                                                                              similar securities.
The market price of our common stock may never
exceed the exercise price of the warrants issued in connection with this offering.
The warrants being
issued in connection with this offering become exercisable on their date of issuance and will expire five years thereafter. We
cannot provide you any assurance that the market price of our common stock will ever exceed the exercise price of these warrants
prior to their date of expiration. Any warrants not exercised by their date of expiration will expire worthless and we will be
under no further obligation to the warrant holder.
Since the warrants are executory contracts, they
may have no value in a bankruptcy or reorganization proceeding.
In the event a bankruptcy
or reorganization proceeding is commenced by or against us, a bankruptcy court may hold that any unexercised warrants are executory
contracts that are subject to rejection by us with the approval of the bankruptcy court. As a result, holders of the warrants
may, even if we have sufficient funds, not be entitled to receive any consideration for their warrants or may receive an amount
less than they would be entitled to if they had exercised their warrants prior to the commencement of any such bankruptcy or reorganization
proceeding.
20
Your ability to resell the securities you acquire
in the rights offering may be limited by state securities laws.
If you purchase securities
in the rights offering, you may not be able to resell the securities to other persons unless the securities are registered under
the securities laws of the states in which the potential purchasers reside or exemptions from registration requirements are available
in such states. We do not intend to register any of the securities for resale in any states or jurisdictions. Consequently, you
may only be able to sell the securities in those states where exemptions are available, such as an exemption for sales to institutional
investors. In addition, in the event that the warrants to be issued in this rights offering are sold to another person, the purchaser
may not be able to exercise the warrants unless an exemption is available in the purchaser's state of residence for the
issuance of common stock upon the exercise of warrants.
Risks Relating to our Company and Industry
We have incurred significant operating losses since
our inception, which we anticipate will continue for the foreseeable future.
Since our inception,
we have incurred significant operating losses. As of September 30, 2012, we had an accumulated deficit of approximately $49.7
million. We incurred operating losses of approximately $6.9 million for the nine months ended September 30, 2012, $2.5 million
net loss for the year ended December 31, 2010, $6.3 million for the year ended December 31, 2009, $9.0 million for the year ended
December 31, 2008, $14.3 million for the year ended December 31, 2007, $14 million for the year ended December 31, 2006, $3.2
million for the year ended December 31, 2005 and approximately $1.1 million for the period from our inception on January 27, 2004
through December 31, 2004. We reported $0.5 million net income for the year ended December 31, 2011. We expect to incur significant
and increasing operating expenses and capital expenditures relating to the development of our software-related business, particularly
as we pursue growth internally, expanding our marketing efforts, and further the development of our technologies. In addition,
we will continue to incur significant legal, accounting and other expenses associated with our status as a reporting company under
the Securities Exchange Act of 1934, as amended, or the Exchange Act. As a result, we will need to generate significant revenues
to achieve profitability. Even if we achieve profitability, we may be unable to maintain or increase profitability on a quarterly
or annual basis. If we are unable to achieve and then maintain profitability, the market value of our stock will decline.
If we fail to increase our brand recognition, we
may face difficulty in attracting new customers.
We believe that establishing,
maintaining and enhancing our brand in a cost-effective manner is critical to achieving widespread acceptance of our current and
future products and services and is an important element in our efforts to maintain and expand our relationships with customers
and to grow our customer base, particularly in light of the competitive nature of our business. We believe that the importance
of brand recognition will increase as competition in our market develops. Some of our competitors already have well-established
brands in the individual health and life insurance market. Successful promotion of our brand will depend largely on our ability
to maintain a sizeable and active customer base, the success of our marketing efforts and our ability to provide high quality
products and reliable and useful service to our customers. There can be no assurance that brand promotion activities will yield
increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we
fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote
and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to
realize a sufficient return on our brand-building efforts, in which case our business, financial condition and results of operations
could be materially harmed.
We may be unable to obtain additional capital when
necessary or on terms that are acceptable to us, if at all.
Since our inception,
we have used significant amounts of cash in our operations and in investing activities. As of September 30, 2012, we had a cash
balance of approximately $2.1 million. We used cash in operations of approximately $0.6 million for the nine months ended September
30, 2012, $1.5 million for the year ended December 31, 2011, $4.8 million for the year ended December 31, 2010, $5.3 million for
the year ended December 31, 2009, $8.4 million for the year ended December 31, 2008, $5.5 million for the year ended December
31, 2007, approximately $6.5 million for the year ended December 31, 2006, $1.2 million for the year ended December 31, 2005 and
approximately $0.5 million for the period from our inception on January 27, 2004 through December 31, 2004. We used cash in investing
of approximately $0.3 million for the nine months ended September 30, 2009, $0.8 million for the year ended December 31, 2008,
$1.9 million for the year ended December 31, 2007, approximately $3.2 million for the year ended December 31, 2006, $0.3 million
for the year ended December 31, 2005 and approximately $0.2 million for the period from our inception on January 27, 2004 through
December 31, 2004.
21
We expect that we
will need significant additional cash resources to operate and expand our business in the future. Our future capital requirements
will depend on many factors, including our ability to maintain our existing cost structure and return on sales, fund obligations
for repayment of our credit facility with Silicon Valley Bank, additional capital and execute our business and strategic plans
as currently conceived. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity
or debt securities or obtain a credit facility. The sale of additional equity securities would result in additional dilution to
our stockholders. Additional indebtedness would result in debt service obligations and could result in operating and financing
covenants that would restrict our operations. In addition, financing might be unavailable in amounts or on terms acceptable to
us, if at all.
We are substantially dependent on our InsPro software
application.
We derive a significant
portion of our revenue from software license and maintenance revenue attributable to our InsPro software application. Accordingly,
our future results depend on continued market acceptance of InsPro, and any factor adversely affecting the market for InsPro could
have a material adverse effect on our business, financial condition and operating results.
We may be unsuccessful in attracting or retaining
key sales, marketing and other personnel or in retaining the members of our senior management team.
The success of our
business is dependent on our ability to attract and retain highly skilled managers and sales and marketing personnel and to retain
the members of our senior management team. Our inability to retain key personnel and attract additional qualified personnel could
harm our development and results of operations.
We may be unable to sufficiently protect our intellectual
property.
Our business and competitive
positions are dependent on our ability to use and protect our proprietary technologies. Our patent applications may not protect
our technologies because, among other things:
·
there is no
                                                                                                              guarantee that any
                                                                                                              pending patent applications
                                                                                                              will result in issued
                                                                                                              patents;
·
we may develop
                                                                                                              additional proprietary
                                                                                                              technologies that
                                                                                                              are not patentable;
·
there is no
                                                                                                              guarantee that any
                                                                                                              patent issued to
                                                                                                              us will provide
                                                                                                              us with any competitive
                                                                                                              advantage;
·
there is no
                                                                                                              guarantee that any
                                                                                                              patents issued to
                                                                                                              us will not be challenged,
                                                                                                              circumvented or
                                                                                                              invalidated by third
                                                                                                              parties; and
·
there is no
                                                                                                              guarantee that any
                                                                                                              patents previously
                                                                                                              issued to others
                                                                                                              or issued in the
                                                                                                              future will not
                                                                                                              have an adverse
                                                                                                              effect on our ability
                                                                                                              to do business.
In addition, if we
are unable to protect and control unpatented trade secrets, know-how and other technological innovation, we may suffer competitive
harm. We also rely on trade secrets, know-how and technologies that are not protected by patents to maintain our competitive position.
Trade secrets are difficult to protect. To maintain the confidentiality of trade secrets and proprietary information, we generally
seek to enter into confidentiality agreements with our employees, consultants and collaborators upon the commencement of a relationship
with us. However, we at times do not obtain these agreements, nor can we guarantee that these agreements will provide meaningful
protection, that these agreements will not be breached or that we will have an adequate remedy for any such breach. In addition,
adequate remedies may not exist in the event of unauthorized use or disclosure of this information. Others may have developed,
or may develop in the future, substantially similar or superior know-how and technologies. The loss or exposure of our trade secrets,
know-how and other proprietary information, or independent development of similar or superior know-how, could harm our business,
financial condition and results of operations.
22
We may become subject to intellectual property
rights claims in the future, which are extremely costly to defend, could require us to pay significant damages and could limit
our ability to use the affected technologies.
Our commercial success
will depend in part on not infringing the patents or proprietary rights of third parties. Third parties could bring legal actions
against us claiming damages and seeking to enjoin us from using any technology found to be in violation of a third party's
rights. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome
of the litigation. If any of these actions are successful, in addition to any potential liability for damages, we could be required
to obtain a license to continue to use the affected technology, in which case we may be required to pay substantial fees. There
can be no assurance that any such license will be available on acceptable terms or at all.
If we are unable to satisfy regulatory requirements
relating to internal controls, or if our internal controls over financial reporting are not effective, our stock price could decline.
As directed by Section
404 of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission, or the Commission, adopted rules requiring public
companies to include a report of management on the company's internal controls over financial reporting in their annual
reports required by Section 13(a) of the Exchange Act. In addition, the public accounting firm auditing the company's financial
statements must attest to and report on management's assessment of the effectiveness of the company's internal controls
over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place to
help ensure that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs
to be re-evaluated frequently. Any failure to maintain the adequacy of our internal controls, or the resulting inability to produce
accurate financial statements on a timely basis, could increase our operating costs and harm our ability to operate our business.
In addition, investor perception that our internal controls are inadequate or that we are unable to produce accurate financial
statements on a consistent basis may adversely affect our stock price.
We may be unable to manage our growth effectively.
Our ability to compete
effectively and to manage our future growth, if any, requires us to:
·
continue to
                                                                                                              improve our financial
                                                                                                              and management controls
                                                                                                              and reporting systems
                                                                                                              and procedures to
                                                                                                              support the proposed
                                                                                                              expansion of our
                                                                                                              business operations;
                                                                                                              and
·
locate or hire,
                                                                                                              at reasonable compensation
                                                                                                              rates, qualified
                                                                                                              personnel and other
                                                                                                              employees necessary
                                                                                                              to expand our capacity
                                                                                                              in order to accommodate
                                                                                                              the proposed expansion
                                                                                                              of our business
                                                                                                              operations.
We may be unable to find or complete strategic
acquisitions of complementary businesses or technologies or to integrate acquired businesses or technologies.
Our business strategy
includes, among other things, achieving growth through the acquisition and integration into our business of complementary businesses
or technologies. We may be unable to find additional complementary businesses or technologies to acquire. Future acquisitions
may result in substantial per share financial dilution of our common stock from the issuance of equity securities. Completion
of future acquisitions also would expose us to potential risks, including risks associated with:
·
the assimilation
                                                                                                              of new operations,
                                                                                                              technologies and
                                                                                                              personnel;
·
unforeseen or
                                                                                                              hidden liabilities
                                                                                                              or other unanticipated
                                                                                                              events or circumstances;
·
the diversion
                                                                                                              of resources from
                                                                                                              our existing business;
·
the inability
                                                                                                              to generate sufficient
                                                                                                              revenue to offset
                                                                                                              the costs and expenses
                                                                                                              of acquisitions,
                                                                                                              which may result
                                                                                                              in the impairment
                                                                                                              of assets acquired
                                                                                                              through acquisitions;
                                                                                                              and
·
the potential
                                                                                                              loss of, or harm
                                                                                                              to, relationships
                                                                                                              with our employees
                                                                                                              and customers as
                                                                                                              a result of the
                                                                                                              integration of new
                                                                                                              businesses.
23
Our operating results may fluctuate as a result
of factors beyond our control.
Our operating results
may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond our control. These factors
include, but are not limited to:
·
capital expenditures
                                                                                                              for the development
                                                                                                              of our technologies;
·
marketing and
                                                                                                              promotional activities
                                                                                                              and other costs;
·
changes in operating
                                                                                                              expenses;
·
increased competition
                                                                                                              in our market; and
·
other general
                                                                                                              economic and seasonal
                                                                                                              factors.
Our business may be materially adversely impacted
by U.S. and global market and economic conditions, particularly adverse conditions in the insurance industry.
For the foreseeable
future, we expect to continue to derive most of our revenue from products and services we provide to the insurance industry. Given
the concentration of our business activities in the insurance industry, we may be particularly exposed to economic downturns in
this industry. U.S. and global market and economic conditions have been, and continue to be, disrupted and volatile. A poor economic
environment could result in significant decreases in demand for our products or could present difficulties in collecting accounts
receivables from our customers due to their deteriorating financial condition. Our existing customers may be acquired by or merged
into other institutions that use our competitors or decide to terminate their relationships with us for other reasons. As a result,
our sales could decline if an existing customer is merged with or acquired by another company or closed. All of these conditions
could adversely affect our operating results and financial position.
We may not be able to secure additional financing
to support capital requirements when needed.
We may need to raise
additional funds in the future in order to fund more aggressive promotion or more rapid market penetration, to develop new or
enhanced products, to respond to competitive pressures, to make acquisitions or for other purposes. Any required additional financing
may not be available on terms favorable to us, or at all, particularly in light of current conditions in the credit markets. If
adequate funds are not available on acceptable terms, we may be unable to meet our strategic business objectives or compete effectively,
and the future growth of our business could be adversely impacted. If additional funds are raised by our issuing equity securities,
stockholders may experience dilution of their ownership and economic interests, and the newly issued securities may have rights
superior to those of our common stock. If additional funds are raised by our issuing debt, we may be subject to significant market
risks related to interest rates, and operating risks regarding limitations on our activities.
The markets for our products are highly competitive
and are likely to become more competitive, and our competitors may be able to respond more quickly to new or emerging technology
and changes in customer requirements.
Our insurance software
business experiences competition from certain large hardware suppliers that sell systems and system components to independent
agencies and from small independent developers and suppliers of software, who sometimes work in concert with hardware vendors
to supply systems to independent agencies. Pricing strategies and new product introductions and other pressures from existing
or emerging competitors could result in a loss of customers or a rate of increase or decrease in prices for our services different
than past experience.
24
Some of our current
competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial
and marketing resources than we do.
If we infringe on the proprietary rights of others,
our business operations may be disrupted, and any related litigation could be time consuming and costly.
Third parties may
claim that we have violated their intellectual property rights. Any of these claims, with or without merit, could subject us to
costly litigation and divert the attention of key personnel. To the extent that we violate a patent or other intellectual property
right of a third party, we may be prevented from operating our business as planned, and we may be required to pay damages, to
obtain a license, if available, to use the right or to use a non-infringing method, if possible, to accomplish our objectives.
The cost of such activity could have a material adverse effect on our business.
If a third party infringes on our
proprietary rights, our business operations may be disrupted, and any related litigation could be time consuming and costly.
We rely on a combination of trademark,
copyright and trade secret laws in the United States and other jurisdictions as well as confidentiality procedures and contractual
provisions to protect our proprietary technology and our brand.
We may be unable to compete successfully against
new and existing competitors.
We operate in a highly
competitive market with few barriers to entry. We expect that competition will continue to intensify. Some of our competitors
are more established than we are, and have significantly greater financial, technical, marketing and other resources than we do.
In addition, many of our current and potential competitors can devote substantially greater resources than we can to promotion,
website development and systems development. Many of our competitors have greater name recognition and a larger customer base
than we do. These competitors may be able to respond more quickly to new or changing opportunities and customer requirements.
Technology and customer requirements evolve rapidly
in our industry, and if we do not continue to develop new products and enhance our existing products in response to these changes,
our business could be harmed.
Ongoing enhancements
to our products will be required to enable us to maintain our competitive position. We may not be successful in developing and
marketing enhancements to our products on a timely basis, and any enhancements we develop may not adequately address the changing
needs of the marketplace. Overlaying the risks associated with our existing products and enhancements are ongoing technological
developments and rapid changes in customer requirements. Our future success will depend upon our ability to develop and introduce
in a timely manner new products or upgrades to our existing products that take advantage of technological advances and respond
to new customer requirements. The development of new products is increasingly complex and uncertain, which increases the risk
of delays. We may not be successful in developing new or updated products incorporating new technology on a timely basis, and
any new products may not adequately address the changing needs of the marketplace. Failure to develop new products and product
enhancements that meet market needs in a timely manner could have a material adverse effect on our business, financial condition
and operating results.
Risks Relating to our Common Stock
Sales of substantial amounts of our common stock
in the public market could depress the market price of our common stock.
Our common stock currently
is quoted on the OTCBB, which is a limited and illiquid market. If our stockholders sell substantial amounts of our common stock
in the public market, including the shares being registered under this registration statement and shares issuable upon the exercise
of outstanding warrants and options, or the market perceives that such sales may occur, the market price of our common stock could
fall and we may be unable to sell our common stock in the future.
25
Our common stock may experience extreme price and
volume fluctuations, which could lead to costly litigation for us and make an investment in us less appealing.
The market price of
our common stock may fluctuate substantially due to a variety of factors, including:
·
our business
                                                                                                              strategy and plans;
·
changing factors
                                                                                                              related to doing
                                                                                                              business in various
                                                                                                              jurisdictions within
                                                                                                              the United States;
·
new regulatory
                                                                                                              pronouncements and
                                                                                                              changes in regulatory
                                                                                                              guidelines and timing
                                                                                                              of regulatory approvals;
·
general and
                                                                                                              industry-specific
                                                                                                              economic conditions;
·
additions to
                                                                                                              or departures of
                                                                                                              our key personnel;
·
variations in
                                                                                                              our quarterly financial
                                                                                                              and operating results;
·
changes in market
                                                                                                              valuations of other
                                                                                                              companies that operate
                                                                                                              in our business
                                                                                                              segments or in our
                                                                                                              industry;
·
lack of adequate
                                                                                                              trading liquidity;
·
announcements
                                                                                                              about our business
                                                                                                              partners;
·
changes in accounting
                                                                                                              principles; and
·
general market
                                                                                                              conditions.
The market prices
of the securities of early-stage companies, particularly companies like ours without consistent product revenues and earnings,
have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to
the operating performance of particular companies. In the past, companies that experience volatility in the market price of their
securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against us could
result in substantial costs, divert our management's attention and resources and harm our financial condition and results
of operations.
Our directors, executive officers and entities
affiliated with them beneficially own a substantial number of shares of our common stock, which gives them significant control
over certain major decisions.
As of December 31,
2012, our executive officers and directors and entities affiliated with them beneficially owned, in the aggregate, approximately
81.3% of our outstanding shares of common stock, 98.6% of our outstanding shares of Series A Convertible Preferred Stock and 42.9%
of our outstanding shares of Series B Convertible Preferred Stock, based on a total of 41,543,655 shares of common stock, 1,276,750
shares of Series A Convertible Preferred Stock and 3,297,378 shares of Series B Convertible Preferred Stock outstanding. These
executive officers, directors and their affiliates may have different interests than you. For example, they could act to delay
or prevent a change of control of us, even if such a change of control would benefit our other stockholders, could prevent or
frustrate attempts to replace or remove current management or could pursue strategies that are different from the wishes of other
investors. This significant concentration of stock ownership may adversely affect the trading price of our common stock due to
investors' perception that conflicts of interest may exist or arise.
26
Transactions in which a privately-held company
merges into a largely inactive company with publicly traded stock are generally closely scrutinized by the Commission and we may
encounter difficulties or delays in obtaining future regulatory approvals.
Historically, the
Commission and Nasdaq and securities exchanges have disfavored transactions in which a privately-held company merges into a largely
inactive company with publicly traded stock, and there is a significant risk that we may encounter difficulties in obtaining the
regulatory approvals necessary to conduct future financing or acquisition transactions, or to eventually achieve our common stock
being quoted on Nasdaq or listed on a securities exchange. Effective August 22, 2005, the Commission adopted rules dealing with
private company mergers into dormant or inactive public companies. As a result, it is likely that we will be scrutinized carefully
by the Commission and possibly by the National Association of Securities Dealers or Nasdaq or a national securities exchange,
which could result in difficulties or delays in achieving Commission clearance of any future registration statements or other
Commission filings that we may pursue, in attracting NASD-member broker-dealers to serve as market-makers in our stock, or in
achieving admission to Nasdaq or a national securities exchange. As a result, our financial condition and the value and liquidity
of our shares may be negatively impacted.
As a stock quoted on the OTCBB, our common stock,
which is deemed to be "penny stock," currently has limited liquidity.
Holders of shares
of our common stock, which are quoted on the OTCBB, may find that the liquidity of our common stock is impaired as compared with
the liquidity of securities listed on Nasdaq or one of the national or regional exchanges in the United States. This impairment
of liquidity may result from reduced coverage of us by security analysts and news media and lower prices for our common stock
than may otherwise be attained. In addition, our common stock is deemed to be "penny stock," as that term is defined
in rules under the Exchange Act. Penny stocks generally are equity securities that are not registered on certain national securities
exchanges or quoted by Nasdaq and have a price per share of less than $5.00. Penny stock may be difficult for investors to resell.
Federal rules and regulations impose additional sales practice requirements on broker-dealers who sell the stock to persons other
than established customers and accredited investors. For transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of these securities and obtain the purchaser's written consent to the transaction
prior to the sale. Prior to the sale, broker-dealers must also deliver to the potential purchaser a disclosure schedule prescribed
by the Commission, describing the penny stock market and disclose the commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, broker-dealers must deliver to penny stock investors monthly
statements disclosing recent price information for penny stocks held in the account and information on the limited market in penny
stocks. These additional requirements restrict the ability of broker-dealers to sell our common stock and make it more difficult
for investors to dispose of our common stock in the secondary market and may also adversely affect the price of our common stock.
27
THE RIGHTS OFFERING
The Subscription Rights
We are distributing,
at no charge to the holders of our capital stock non-transferable subscription rights to subscribe for units, which we refer to
throughout this prospectus as Units, consisting of 333 shares of our Series B Convertible Preferred Stock and a five-year warrant
to purchase 3,330 additional shares of our common stock at an exercise price of $0.15 per share. Our stockholders will receive
one subscription right for every 53,155 shares of our common stock, 2,660 shares of Series A Convertible Preferred Stock and 2,665
shares of Series B Convertible Preferred Stock held of record as of 5:00 p.m., New York City time, on ________, 2013, the record
date. Pursuant to the terms of this offering, the rights may only be exercised for a maximum of 2,500 Units, or $2.5 million of
gross subscription proceeds.
Each subscription
right entitles the holder to a basic subscription right and an over-subscription privilege.
Basic Subscription
Right
. With your basic subscription right, you may purchase one Unit, consisting of 333 shares of our Series B Convertible
Preferred Stock and a five-year warrant to purchase 3,330 additional shares of our common stock and exercise price of $0.15 per
share, subject to delivery of the required documents and payment of the subscription price of $999.00 per Unit, prior to the expiration
of the rights offering. You may exercise all or a portion of your basic subscription right, or you may choose not to exercise
any of your subscription rights. If you do not exercise your basic subscription rights in full, you will not be entitled to purchase
any shares under your over-subscription privilege. There is no minimum number of Units you must purchase, but you may not purchase
fractional Units. When determining the number of subscription rights you will receive, divide the number of shares of our common
stock you own by 53,155, the number of shares of Series A Convertible Preferred Stock you own by 2,660 and the number of shares
of Series B Convertible Preferred Stock you own by 2,665, and round down the sum of those amounts to the next whole number. For
example, if you own 100,000 shares of our common stock, 10,000 shares of our Series A Convertible Preferred Stock and 10,000 shares
of our Series B Convertible Preferred Stock, you will receive 9 subscription rights (100,000 shares of common stock divided by
53,155 = 1.88, 10,000 shares of Series A Convertible Preferred Stock divided by 2,660 = 3.76, 10,000 shares of Series B Convertible
Preferred Stock divided by 2,665 = 3.77, which sum = 9.41, rounded down to 9 subscription rights, the next whole number), which
will entitle you to subscribe for up to 9 Units under your basic subscription privilege.
Any excess subscription
payments received by us will be returned, without interest, as soon as practicable following the expiration of the rights offering.
We will deliver certificates
representing shares of our Series B Convertible Preferred Stock and warrants or credit your account at your record holder with
shares of our Series B Convertible Preferred Stock and warrants that you purchased with the basic subscription rights as soon
as practicable after the rights offering has expired.
Over-Subscription
Privilege
. If you purchase all of the Units available to you pursuant to your basic subscription right, you may also choose
to purchase a portion of any Units that are not purchased by other stockholders through the exercise of their basic subscription
rights. If sufficient Units are available, we will seek to honor the over-subscription requests in full. If, however, over-subscription
requests exceed the number of Units available, we will allocate the available Units pro rata among the stockholders exercising
the over-subscription privilege in proportion to the number of shares of capital stock owned by such stockholder on the record
date, relative to the number of shares owned on the record date by all stockholders exercising the over-subscription privilege.
If this pro rata allocation results in any stockholder receiving a greater number of Units than the stockholder subscribed for
pursuant to the exercise of the over-subscription privilege, then such stockholder will be allocated only that number of Units
for which the stockholder oversubscribed, and the remaining Units will be allocated among all other stockholders exercising the
over-subscription privilege on the same pro rata basis described above. The proration process will be repeated until all Units
have been allocated.
In order to properly
exercise your over-subscription privilege, you must deliver the subscription payment related to your over-subscription privilege
prior to the expiration of the rights offering. Because we will not know the total number of unsubscribed Units prior to the expiration
of the rights offering, if you wish to maximize the number of Units you purchase pursuant to your over-subscription privilege,
you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of Units that may
be available to you (i.e., for the maximum number of Units available to you, assuming you exercise all of your basic subscription
right and are allotted the full amount of your over-subscription without reduction).
28
We can provide no
assurances that you will actually be entitled to purchase the number of Units issuable upon the exercise of your over-subscription
right in full at the expiration of the rights offering. We will not be able to satisfy any orders for Units pursuant to the over-subscription
privilege if all of our stockholders exercise their basic subscription rights in full, and we will only honor an over-subscription
privilege to the extent sufficient Units are available following the exercise of subscription rights pursuant to the basic subscription
rights.
To the extent the
aggregate subscription price of the actual number of unsubscribed Units available to you pursuant to the over-subscription privilege
is less than the amount you actually paid in connection with the exercise of the over-subscription privilege, you will be allocated
only the number of unsubscribed Units available to you, and any excess subscription payments will be returned to you, without
interest or penalty, as soon as practicable.
To the extent the
amount you actually paid in connection with the exercise of the over-subscription privilege is less than the aggregate subscription
price of the maximum number of unsubscribed Units available to you pursuant to the over-subscription privilege, you will be allocated
the number of unsubscribed Units for which you actually paid in connection with the over-subscription privilege and subject to
the elimination of any fractional Units.
Any excess subscription
payments received by us will be returned, without interest or penalty, as soon as practicable.
We will deliver certificates
representing shares of our of Series B Convertible Preferred Stock and warrants or credit the account of your record holder with
shares of our of Series B Convertible Preferred Stock and warrants that you purchased with the over-subscription privilege as
soon as practicable after the expiration of the rights offering.
Reasons for the Rights Offering
We are engaging in
the rights offering to give all of the holders of our capital stock the opportunity to participate in an equity investment in
InsPro Technologies Corporation on substantially the same economic terms as our last private placement in November 2012 and to
raise capital to improve our overall capital position. Our board of directors has chosen to raise capital through a rights offering
to give our stockholders the best opportunity to limit ownership dilution by participating in the rights offering on a pro-rata
basis. In addition, this rights offering, including the composition and price of the Unit, was designed to give all of the holders
of our capital stock the opportunity to participate in an equity investment in InsPro Technologies Corporation on substantially
the same economic terms as our last private placement in November 2012.
Effect of Rights Offering on Existing Stockholders
The ownership interests
and voting interests of the existing stockholders that do not exercise their basic subscription privileges will be diluted. See
"Questions and Answers Related to the Rights Offering."
Method of Exercising Subscription Rights
The exercise of subscription
rights is irrevocable and may not be cancelled or modified. You may exercise your subscription rights as follows:
Subscription
by Registered Holders
. If you hold an InsPro Technologies Corporation stock certificate, the number of Units you may purchase
pursuant to your basic subscription right is indicated on the enclosed rights certificate. You may exercise your subscription
rights by properly completing and executing the rights certificate and forwarding it, together with your full payment, to us at
the address set forth below under "— Delivery of Subscription Payments," to be received prior to 5:00 p.m.,
Eastern Time, on ______, 2013.
29
Subscription
by Beneficial Owners
. If you are a beneficial owner of shares of our capital stock that are registered in the name of
a broker, custodian bank or other nominee, you will not receive a rights certificate. Instead, the DTC will issue one subscription
right to the nominee record holder for each 53,155 shares of our common stock, 2,660 shares of Series A Convertible Preferred
Stock and 2,665 shares of Series B Convertible Preferred Stock that you own at the record date. If you are not contacted by your
nominee, you should promptly contact your nominee in order to subscribe for Units in the rights offering.
Payment Method
Payments must be made
in full in U.S. currency by:
·
check or bank
                                                                                                              draft payable to
                                                                                                              InsPro Technologies
                                                                                                              Corporation, drawn
                                                                                                              upon a U.S. bank;
                                                                                                              or
·
wire transfer
                                                                                                              of immediately available
                                                                                                              funds to an account
                                                                                                              maintained by InsPro
                                                                                                              Technologies Corporation
                                                                                                              for purposes of
                                                                                                              this rights offering.
Payment received after
the expiration of the rights offering will not be honored, and we will return your payment to you, without interest, as soon as
practicable. We will be deemed to receive payment upon:
·
clearance of
                                                                                                              any uncertified
                                                                                                              check deposited
                                                                                                              by us into our account
                                                                                                              designated for the
                                                                                                              rights offering;
·
receipt by us
                                                                                                              of any certified
                                                                                                              check or bank draft,
                                                                                                              drawn upon a U.S.
                                                                                                              bank; or
·
receipt of collected
                                                                                                              funds in our account
                                                                                                              designated for the
                                                                                                              rights offering.
If you elect to exercise
your subscription rights, we urge you to consider using a certified or cashier's check, money order or wire transfer of
funds to ensure that we receive your funds prior to the expiration of the rights offering. If you send an uncertified check, payment
will not be deemed to have been received by us until the check has cleared. If you send a certified check or bank draft, drawn
upon a U.S. bank, or wire or transfer funds directly to our account, payment will be deemed to have been received by us immediately
upon receipt of such instruments or wire transfer.
Any personal check
used to pay for Units must clear the appropriate financial institutions prior to 5:00 p.m., Eastern Time, on _______, 2013, which
is the expiration of the rights offering. The clearinghouse may require five or more business days. Accordingly, holders that
wish to pay the subscription price by means of an uncertified personal check are urged to make payment sufficiently in advance
of the expiration of the rights offering to ensure such payment is received and clears by such date.
You should read the
instruction letter accompanying the rights certificate carefully and strictly follow it. We will not consider your subscription
received until we have received delivery of a properly completed and duly executed rights certificate and payment of the full
subscription amount. The risk of delivery of all documents and payments is borne by you or your nominee, not by InsPro Technologies
Corporation.
The method of delivery
of rights certificates and payment of the subscription amount to us will be at the risk of the holders of subscription rights.
If sent by mail, we recommend that you send those certificates and payments by overnight courier or by registered mail, properly
insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to us and clearance
of payment prior to the expiration of the rights offering.
Unless a rights certificate
provides that the shares of preferred stock and the warrants are to be delivered to the record holder of such rights or such certificate
is submitted for the account of a bank or a broker, signatures on such rights certificate must be guaranteed by an "eligible
guarantor institution," as such term is defined in Rule 17Ad-15 of the Exchange Act.
30
Medallion Guarantee May Be Required
Your signature on
your rights certificate must be guaranteed by an eligible institution, such as a member firm of a registered national securities
exchange or a member of the Financial Industry Regulatory Authority, Inc., or a commercial bank or trust company having an office
or correspondent in the United States, unless:
·
you provide
                                                                                                              on the rights certificate
                                                                                                              that shares and
                                                                                                              warrants are to
                                                                                                              be delivered to
                                                                                                              you as record holder
                                                                                                              of those subscription
                                                                                                              rights; or
·
you are an eligible
                                                                                                              institution.
Missing or Incomplete Subscription Information
If you hold your shares
of capital stock in the name of a custodian bank, broker, dealer or other nominee, the nominee will exercise the subscription
rights on your behalf in accordance with your instructions. Your nominee may establish a deadline that may be before the 5:00
p.m., Eastern Time ________, 2013 expiration date that we have established for the rights offering. If you send a payment that
is insufficient to purchase the number of Units you requested, or if the number of Units you requested is not specified in the
forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount
of the payment received, subject to the availability of Units under the over-subscription privilege and the elimination of fractional
Units. Any excess subscription payments received by us will be returned, without interest, as soon as practicable following the
expiration of the rights offering.
Expiration Date and Cancellation Rights
The subscription period,
during which you may exercise your subscription rights, expires at 5:00 p.m., Eastern Time, on ________, 2013, which is the expiration
of the rights offering. If you do not exercise your subscription rights prior to that time, your subscription rights will expire
and will no longer be exercisable. We will not be required to issue shares of our Series B Convertible Preferred Stock or warrants
to you if we receive your rights certificate or your subscription payment after that time. We have the option to extend the rights
offering without notice to you, although we do not presently intend to do so. We may extend the expiration of the rights offering
at any time prior to the scheduled expiration of the rights offering. If we elect to extend the expiration of the rights offering,
we will issue a press release announcing such extension no later than 9:00 a.m., Eastern Time, on the next business day after
the most recently announced expiration of the rights offering. We reserve the right to amend or modify the terms of the rights
offering.
If you hold your shares
of capital stock in the name of a broker, dealer, custodian bank or other nominee, the nominee will exercise the subscription
rights on your behalf in accordance with your instructions. Please note that the nominee may establish a deadline that may be
before the 5:00 p.m., Eastern Time, ________, 2013, expiration date that we have established for the rights offering.
We may cancel the
rights offering at any time for any reason prior to the time the rights offering expires. If we cancel the rights offering, we
will issue a press release notifying stockholders of the cancellation and all subscription payments received by us will be returned,
without interest or penalty, as soon as practicable.
Determination of Subscription Price
The $999.00 per Unit
subscription price was determined by our board of directors based on the per share value of the Series B Convertible Preferred
Stock and warrants (considered in the aggregate) purchased by investors in our last private placement in November 2012. In November
2012, we sold units, consisting of one share of our Series B Convertible Preferred Stock (each share of which is convertible,
at the sole option of the holder, into 20 shares of our common stock) and one five-year warrant to purchase 10 shares of our common
stock, at a per unit price of $3.00. We sold a total of 499,999 units in that offering for an aggregate purchase price of $1.5
million.
31
In determining the
subscription price, our board of directors considered the overall economic value offered to investors in InsPro Technologies Corporation
in the last private placement. If an investor had invested in the last private placement, for every $999.00 invested, such investor
would have received 333 shares of Series B Convertible Preferred Stock and warrants to purchase 3,330 additional shares of our
common stock at an exercise price of $0.15 per share. As a result, the Units offered in this rights offering consist of 333 shares
of our Series B Convertible Preferred Stock and a warrant to purchase 3,330 of our common stock at a price per Unit of $999.00.
We did not seek or
obtain an opinion of financial advisors in establishing the subscription price. The subscription price will not necessarily be
related to our book value, tangible book value, net worth or any other established criteria of fair value.
There is currently
no market for our shares of Series B Convertible Preferred Stock and, unless you choose to convert any shares of preferred stock
you purchase in this offering into shares of common stock, you will not be able to re-sell such shares. We urge you to obtain
a current quote for our common stock and perform an independent assessment of our Series B Convertible Preferred Stock and warrants
before exercising your subscription rights and to make your own assessment of our business and financial condition, our prospects
for the future, and the terms of this rights offering.
Terms of Series B Convertible Preferred Stock
Each share of Series
B Convertible Preferred Stock offered in this rights offering is convertible, at the sole discretion of each holder of preferred
stock, into 20 shares of common stock, subject to certain adjustments. The holders of shares of our Series B Convertible Preferred
Stock are entitled to vote, with respect to any question upon which holders of our common stock are entitled to vote, together
with the holders of common stock as one class on an as-converted basis. At such time, if any, as our board of directors declares
a dividend or distribution on the common stock, the holders of preferred stock shall be entitled to receive, for each share of
Series B Convertible Preferred Stock held by them, a dividend or distribution in an amount equal to what such holder of preferred
stock would receive if their shares were converted into shares of common stock. We do not currently intend to pay any cash dividends
to the holders of shares of our common stock.
In addition, upon
the liquidation, sale or merger of InsPro Technologies Corporation, each share of our Series B Convertible Preferred Stock is
entitled to receive an amount equal to the greater of (A) a liquidation preference equal to the preferred stock original issue
price, subject to certain customary adjustments, or (B) the amount such preferred stock would receive if it participated pari
passu with the holders of our common stock on an as-converted basis. For so long as any shares of Series B Convertible Preferred
Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of preferred stock is required
to approve (Y) any amendment to our certificate of incorporation or bylaws that would adversely alter the voting powers, preferences
or special rights of the Series B Convertible Preferred Stock or (Z) any amendment to our certificate of incorporation to create
any shares of capital stock that rank senior to the Series B Convertible Preferred Stock. In addition to the voting rights described
above, for so long as 1,000,000 shares of Series B Convertible Preferred Stock are outstanding, the vote or consent of the holders
of at least two-thirds of the preferred stock is required to effect or validate any merger, sale of substantially all of the assets
of InsPro Technologies Corporation or other fundamental transaction, unless such transaction, when consummated, will provide the
holders of preferred stock with an amount per share equal to the preferred stock original issue price plus any declared but unpaid
dividends.
Terms of Warrants
The warrants that
we are offering in this rights offering are in substantially similar form to those warrants purchased by our investors in the
last private placement in November 2012. Each warrant issued as a component of the Units will be a five-year warrant to purchase
3,330 of our common stock at an exercise price of $0.15 per share, subject to our right to call the warrant under certain conditions.
The warrants include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per share during
the first two years following the date of issuance of the warrants, subject to customary exceptions.
32
Withdrawal, Amendment and Termination
We reserve the right
to withdraw the rights offering at any time for any reason. We also may amend or terminate the rights offering at any time before
its completion if our board of directors decides to do so in its sole discretion. If we terminate the rights offering, all affected
subscription rights will expire without value, and all excess subscription payments received by us will be returned, without interest,
as soon as practicable.
Delivery of Subscription Payments
The address to which
rights certificates and payments, other than wire transfers, should be mailed or delivered is provided below. If sent by mail,
we recommend that you send documents and payments by overnight courier or by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery.
InsPro Technologies Corporation
150 N. Radnor-Chester Rd.
Suite B-101
Radnor, PA 19087
Attn: Francis L. Gillan III
If you deliver subscription
documents or rights certificates in a manner different than that described in this prospectus, we may not honor the exercise of
your subscription rights.
If you have any questions
regarding completing a rights certificate, submitting payment in the rights offering, or questions or requests regarding InsPro
Technologies Corporation or the rights offering in general, please call Francis L. Gillan III, at (484) 654-2200. You may also
contact us with questions by electronic mail at
rightsoffering@inspro.com
.
Fees and Expenses
We will pay the fees
and expenses of collecting the subscription payments and distributing the share certificates and warrants associated with the
Units. You are responsible for paying any other commissions, fees, taxes or other expenses that you may incur in connection with
the exercise of your subscription rights.
No Fractional Shares
All Units will be
sold at a purchase price of $999.00 per Unit. We will not issue fractional Units. Fractional Units resulting from the exercise
of the basic subscription rights and the over-subscription privileges will be eliminated by rounding down to the nearest whole
Unit. Any excess subscription payments received by us will be returned, without interest, as soon as practicable.
Notice to Nominees
If you are a broker,
custodian bank or other nominee holder that holds shares of our capital stock for the account of others on the record date, you
should notify the beneficial owners of the shares for whom you are the nominee of the rights offering as soon as possible to learn
their intentions with respect to exercising their subscription rights. You should obtain instructions from the beneficial owners
of our capital stock. If a registered holder of our capital stock so instructs, you should complete the rights certificate and
submit it to us with the proper subscription payment by the expiration date. You may exercise the number of subscription rights
to which all beneficial owners in the aggregate otherwise would have been entitled had they been direct holders of our capital
stock on the record date, provided that you, as a nominee record holder, make a proper showing to us by submitting the form entitled
"Nominee Holder Certification," which is provided with your rights offering materials. If you did not receive this
form, you should contact us to request a copy.
33
Beneficial Owners
If you are a beneficial
owner of shares of our capital stock and will receive your subscription rights through a broker, custodian bank or other nominee,
we will ask your nominee to notify you of the rights offering. If you wish to exercise your subscription rights, you will need
to have your nominee act for you, as described above. To indicate your decision with respect to your subscription rights, you
should follow the instructions of your nominee. If you wish instead to obtain a separate rights certificate, you should contact
your nominee as soon as possible and request that a rights certificate be issued to you. You should contact your nominee if you
do not receive notice of the rights offering, but you believe you are entitled to participate in the rights offering. We are not
responsible if you do not receive the notice by mail or otherwise from your nominee or if you receive notice without sufficient
time to respond to your nominee by the deadline established by your nominee, which may be before the 5:00 p.m., Eastern Time,
_________, 2013, expiration date.
Non-Transferability of Subscription Rights
The subscription rights
granted to you are non-transferable and, therefore, you may not sell, transfer or assign your subscription rights to anyone. We
will not be listing shares of our Series B Convertible Preferred Stock, the warrants or the subscription rights for trading on
OTCBB or any other stock exchange or market.
Validity of Subscriptions
We will resolve all
questions regarding the validity and form of the exercise of your subscription rights, including time of receipt and eligibility
to participate in the rights offering. Our determination will be final and binding. Once made, subscriptions and directions are
irrevocable, and we will not accept any alternative, conditional or contingent subscriptions or directions. We reserve the absolute
right to reject any subscriptions or directions not properly submitted or the acceptance of which would be unlawful. You must
resolve any irregularities in connection with your subscriptions before the subscription period expires, unless waived by us in
our sole discretion. We shall not be under any duty to notify you or your representative of defects in your subscriptions. A subscription
will be considered accepted, subject to our right to withdraw or terminate the rights offering, only when a properly completed
and duly executed rights certificate and any other required documents and the full subscription payment have been received by
us. Our interpretations of the terms and conditions of the rights offering will be final and binding.
Escrow Arrangements; Return of Funds
We will hold funds
received in payment for Units in a segregated account pending completion of the rights offering. We will hold this money in escrow
until the rights offering is completed or is withdrawn and cancelled. If the rights offering is cancelled for any reason, all
subscription payments received by us will be returned, without interest or penalty, as soon as practicable.
Stockholder Rights
You will have no rights
as a holder of the shares of our Series B Convertible Preferred Stock you purchase in the rights offering until certificates representing
the shares of our Series B Convertible Preferred Stock are issued to you.
No Revocation or Change
Once you submit the
rights certificate or have instructed your nominee of your subscription request, you are not allowed to revoke or change the exercise
or request a refund of monies paid. All exercises of subscription rights are irrevocable, even if you learn information about
us that you consider to be unfavorable. You should not exercise your subscription rights unless you are certain that you wish
to purchase Units at the subscription price.
34
Material U.S. Federal Income Tax Treatment of Rights
Distribution
It is the opinion
of our counsel, Morgan, Lewis & Bockius LLP, that you should not recognize income or loss upon receipt or exercise of these
subscription rights to purchase shares of our Series B Convertible Preferred Stock and warrants for the reasons described below
in "Material U.S. Federal Income Tax Considerations."
No Recommendation to Rights Holders
Our board of directors
is making no recommendation regarding your exercise of the subscription rights. Stockholders who exercise subscription rights
risk investment loss on new money invested. You are urged to make your decision based on your own assessment of our business and
financial condition, our prospects for the future and the terms of this rights offering. Please see "Risk Factors"
for a discussion of some of the risks involved in investing in our common and preferred stock.
Shares of Our Series B Convertible Preferred Stock
and Warrants Outstanding After the Rights Offering
As of
December
31,
2012, 3,297,378 shares of our Series B Convertible Preferred Stock and warrants to purchase 92,020,447 shares of our
common stock were issued and outstanding. Assuming no other transactions by us involving our Series B Convertible Preferred Stock
or warrants, if the rights offering is fully subscribed through the exercise of the subscription rights, then an additional 832,500
shares of our Series B Convertible Preferred Stock and warrants to purchase 8,325,000 shares of our common stock will be issued
and outstanding after the closing of the rights offering, for a total of 4,129,878 shares of Series B Convertible Preferred Stock
and warrants to purchase 100,345,447 shares of common stock outstanding.
35
USE OF PROCEEDS
Although the actual
amount will depend on participation in the rights offering, we expect that the net proceeds from the rights offering will be approximately
$2.5 million. We intend to use the proceeds of the rights offering for general corporate and working capital purposes, including
for the purpose of funding current operations, discontinued operations and future commitments. Obtaining funding through the rights
offering will allow us additional timing flexibility before we need to raise funds through additional financings or other methods.
To the extent that
we raise less than $2.5 million in net proceeds in the rights offering, we anticipate reducing the amounts of proceeds to be allocated
to the foregoing uses on a pro rata basis.
DILUTION
Purchasers of Units
in the rights offering (and upon exercise of the warrants issued pursuant to this rights offering) will experience an immediate
dilution of the net tangible book value per share of our common stock. Our net tangible book value as of September 30, 2012 was
approximately $1,964,279, or $0.0160 per share of our common stock (based upon 41,354,645 shares of our common stock outstanding,
as adjusted for 25,535,000 shares of common stock underlying the 1,276,750 shares of our Series A Convertible Preferred Stock
and the 55,947,580 shares of common stock underlying the 2,797,379 shares of our Series B Convertible Preferred Stock outstanding).
Net tangible book value per share is equal to our total net tangible book value, which is our total tangible assets less our total
liabilities, divided by the number of shares of our outstanding common stock. Dilution per share equals the difference between
the amount per share of common stock paid by purchasers of Units in the rights offering and the net tangible book value per share
of our common stock immediately after the rights offering.
Based on the aggregate
offering of a maximum of 2,500 Units and after deducting estimated offering expenses payable by us of approximately $81,841, and
the application of the estimated $2,415,659 of net proceeds from the rights offering, our pro forma net tangible book value as
of September 30, 2012 would have been approximately $3,880,438 or $0.0278 per share. This represents an immediate increase in
pro forma net tangible book value to existing stockholders of $0.0118 per share and an immediate dilution to purchasers in the
rights offering of $0.1382 per share.
The following table
illustrates this per-share dilution (assuming a fully subscribed for rights offering of 2,500 Units at the subscription price
of $999.00 per Unit but excluding any issuance of shares of common stock to holders of warrants):
Price per Unit
$
999.00
Net tangible book value per common share prior to the rights
    offering
$
0.0160
Increase per common share attributable to the rights offering
$
0.0118
Pro forma net tangible book value per common share after
    the rights offering
$
0.0278
Dilution in net tangible book value per common share to purchasers
$
0.1382
36
CAPITALIZATION
The following table
sets forth our capitalization, cash and cash equivalents:
·
on an actual
                                                                                                              basis as of September
                                                                                                              30, 2012; and
·
on a pro forma
                                                                                                              as adjusted basis
                                                                                                              to give effect to
                                                                                                              the sale of maximum
                                                                                                              of 2,500 Units in
                                                                                                              this rights offering
                                                                                                              (but excluding any
                                                                                                              issuance of shares
                                                                                                              of common stock
                                                                                                              to holders of warrants),
                                                                                                              assuming a subscription
                                                                                                              price of $999.00
                                                                                                              per Unit, and our
                                                                                                              receipt of the net
                                                                                                              proceeds of $2,415,659
                                                                                                              million from that
                                                                                                              sale after deducting
                                                                                                              estimated offering
                                                                                                              expenses payable
                                                                                                              by us.
This table should
be read in conjunction with our "Management's Discussion and Analysis or Plan of Operation" and our consolidated
financial statements and the related notes included elsewhere in this prospectus.
September 30, 2012
(Unaudited)
Actual
Pro Forma
As Adjusted (1)
Cash
$
2,091,032
$
4,506,691
Total assets
$
6,491,972
$
8,907,631
Total liabilities
$
4,527,693
$
5,027,193
Net tangible book value
$
1,964,279
$
3,880,438
Total shareholders' equity
$
1,964,279
$
3,880,438
Total liabilities and shareholders' equity
$
6,491,972
$
8,907,631
(1) Assumes the rights offering is fully
subscribed for, of which no assurances can be given.
DESCRIPTION OF SECURITIES
Our authorized capital
stock consists of 300,000,000 shares of common stock, par value $0.001 per share, and 20,000,000 shares of preferred stock, par
value $0.001 per share, 3,437,500 of which are designated as Series A Convertible Preferred Stock and 5,000,000 of which are designated
as Series B Convertible Preferred Stock. As of December 31, 2012, we had 1,276,750 shares of Series A Convertible Preferred Stock
currently issued and outstanding and 300,000 shares of Series A Convertible Preferred Stock reserved for issuance underlying currently
issued and outstanding warrants. As of December 31, 2012, we had 3,297,378 shares of Series B Convertible Preferred Stock currently
issued and outstanding. As of December 31, 2012, we had 41,543,655 shares of common stock issued and outstanding, 92,020,447 shares
of common stock reserved for issuance underlying currently issued and outstanding warrants, 6,210,000 shares of common stock reserved
for issuance underlying currently issued and outstanding options, and 22,786,980 shares of common stock reserved for issuance
under certain of our existing equity compensation plans.
Common Stock
Holders of shares
of our common shares are entitled to one vote per share on all matters to be voted upon by the stockholders and are not entitled
to cumulative voting for the election of directors. Holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by our board of directors out of funds legally available therefore, subject to the rights
of the preferred stockholders. We do not currently intend to pay any cash dividends to the holders of common stock. In the event
that we liquidate, dissolve or wind up the Company, the holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities and the preferences of preferred stockholders. Our common stock has no preemptive, conversion or
other subscription rights. There are no redemption or sinking fund provisions applicable to common shares.
37
Series A Convertible Preferred Stock
Each share of Series
A Convertible Preferred Stock is convertible, at the sole discretion of each holder of Series A Convertible Preferred Stock, into
20 shares of common stock, subject to certain adjustments. The holders of shares of our Series A Convertible Preferred Stock are
entitled to vote, with respect to any question upon which holders of our common stock are entitled to vote, together with the
holders of common stock as one class on an as-converted basis. At such time, if any, as our board of directors declares a dividend
or distribution on the common stock, the holders of Series A Convertible Preferred Stock shall be entitled to receive, for each
share of Series A Convertible Preferred Stock held by them, a dividend or distribution in an amount equal to what such holder
of Series A Convertible Preferred Stock would receive if their shares were converted into shares of common stock. We do not currently
intend to pay any cash dividends to the holders of shares of our common stock.
In addition, upon
the liquidation, sale or merger of InsPro Technologies Corporation, each share of our Series A Convertible 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 Convertible Preferred Stock original issue price, subject to certain customary adjustments, or (B) the amount such preferred
stock would receive if it participated pari passu with the holders of our common stock on an as-converted basis. For so long as
any shares of Series A Convertible Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds
of the shares of Series A Convertible Preferred Stock is required to approve (Y) any amendment to our certificate of incorporation
or bylaws that would adversely alter the voting powers, preferences or special rights of the Series A Convertible Preferred Stock
or (Z) any amendment to our certificate of incorporation to create any shares of capital stock that rank senior to the Series
A Convertible Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series A Convertible
Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series A Convertible Preferred
Stock is required to effect or validate any merger, sale of substantially all of the assets of InsPro Technologies Corporation
or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series A Convertible
Preferred Stock with an amount per share equal to two and a half (2.5) times the Series A Convertible Preferred Stock original
issue price.
In the event of (a)
the sale of all or substantially all of the assets of InsPro Technologies Corporation, (b) any tender offer or exchange pursuant
to which the holders of a majority of common stock exchange such shares for other securities, cash or property or (c) any reclassification
of the common stock pursuant to which the shares of common stock are effectively converted or exchanges for other securities,
cash or property, if we do not effect a dissolution within 90 days after such event, the holder of a majority of the shares of
Series A Convertible Preferred Stock may require, within 120 days of such event, to redeem all outstanding shares of Series A
Convertible Preferred Stock at a price per share equal to two and a half (2.5) times the Series A Convertible Preferred Stock
original issue price, subject to certain customary adjustments.
Except as noted above
our shares of Series A Convertible Preferred Stock have no other conversion, preemptive or other subscription rights. There are
no sinking fund provisions applicable to preferred stock.
Series B Convertible Preferred Stock
Each share of Series
B Convertible Preferred Stock is convertible, at the sole discretion of each holder of Series B Convertible Preferred Stock, into
20 shares of common stock, subject to certain adjustments. The holders of shares of our Series B Convertible Preferred Stock are
entitled to vote, with respect to any question upon which holders of our common stock are entitled to vote, together with the
holders of common stock as one class on an as-converted basis. At such time, if any, as our board of directors declares a dividend
or distribution on the common stock, the holders of Series B Convertible Preferred Stock shall be entitled to receive, for each
share of Series B Convertible Preferred Stock held by them, a dividend or distribution in an amount equal to what such holder
of Series B Convertible Preferred Stock would receive if their shares were converted into shares of common stock. We do not currently
intend to pay any cash dividends to the holders of shares of our common stock.
In addition, upon
the liquidation, sale or merger of InsPro Technologies Corporation, each share of our Series B Convertible Preferred Stock is
entitled to receive an amount equal to the greater of (A) a liquidation preference equal to the Series B Convertible Preferred
Stock original issue price, subject to certain customary adjustments, or (B) the amount such Series B Convertible Preferred Stock
would receive if it participated pari passu with the holders of our common stock on an as-converted basis. For so long as any
shares of Series B Convertible Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the
shares of Series B Convertible Preferred Stock is required to approve (Y) any amendment to our certificate of incorporation or
bylaws that would adversely alter the voting powers, preferences or special rights of the Series B Convertible Preferred Stock
or (Z) any amendment to our certificate of incorporation to create any shares of capital stock that rank senior to the Series
B Convertible Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares of Series B Convertible
Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the Series B Convertible Preferred
Stock is required to effect or validate any merger, sale of substantially all of the assets of InsPro Technologies Corporation
or other fundamental transaction, unless such transaction, when consummated, will provide the holders of Series B Convertible
Preferred Stock with an amount per share equal to the Series B Convertible Preferred Stock original issue price, plus any declared
but unpaid dividends.
38
Except as noted above
our shares of Series B Convertible Preferred Stock have no other conversion, preemptive or other subscription rights. There are
no sinking fund provisions applicable to Series B Convertible Preferred Stock.
Warrants
As of December 31,
2012, there were outstanding (i) warrants to purchase up to 67,020,447 shares of our common stock at an exercise price per share
of $0.15 and (ii) warrants to purchase up to 25,000,000 shares of our common stock at an exercise price per share of $0.20.
In connection with
our private placement in March 2008, we issued to investors five-year warrants to purchase up to 6,250,000 shares of our common
stock at $0.80 per share, which warrants were subsequently adjusted following the closing of our private placement in January
2009 to provide for the purchase of up to 18,750,000 shares of our common stock at an exercise price of $0.20 per share, per the
anti-dilution provisions contained in such warrants.
The warrants to be
issued as part of the Units upon exercise of the subscription rights will contain substantially the same terms as the warrants
issued to the investors in our November 2012 private placement. Each warrant issued as a component of the Units will be a five-year
warrant to purchase 3,330 of our common stock at an exercise price of $0.15 per share, subject to our right to call the warrant
under certain conditions. The warrants include full ratchet anti-dilution adjustment provisions for issuances of securities below
$0.15 per share during the first two years following the date of issuance of the warrants, subject to customary exceptions.
As of December 31,
2012, there were outstanding warrants to purchase up to 300,000 shares of our Series A Convertible Preferred Stock at an exercise
price per share of $4.00.
Prior to exercise,
the warrants do not confer upon holders any voting or any other rights as a stockholder.
MARKET FOR OUR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market Information
Our common stock has
been quoted on the OTCBB since December 6, 2010 under the symbol ITCC.OB and from December 13, 2005 until December 3, 2010 under
the symbol HBDT.OB. Prior to December 13, 2005, there was no active market for our common stock.
The following table
sets forth the high and low bid prices for our common stock for the periods indicated, as reported by the OTCBB. The prices state
inter-dealer quotations, which do not include retail mark-ups, mark-downs or commissions. Such prices do not necessarily represent
actual transactions.
High
Low
2010:
First quarter, ended March 31, 2010
$
0.12
$
0.04
Second quarter, ended June 30, 2010
$
0.11
$
0.04
Third quarter, ended September 30, 2010
$
0.18
$
0.04
Fourth quarter, ended December 31, 2010
$
0.51
$
0.05
2011:
First quarter, ended March 31, 2011
$
0.10
$
0.05
Second quarter, ended June 30, 2011
$
0.10
$
0.02
Third quarter, ended September 30, 2011
$
0.09
$
0.02
Fourth quarter, ended December 31, 2011
$
0.045
$
0.0095
2012:
First quarter, ended March 31, 2012
$
0.034
$
0.010
Second quarter, ended June 30, 2012
$
0.100
$
0.010
Third quarter, ended September 30, 2012
$
0.100
$
0.025
Fourth quarter, through December 28, 2012
$
0.090
$
0.040
Holders of Record
Based on information
furnished by our transfer agent, as of December 31, 2012, we had approximately 108 holders of record of our common stock.
Dividends
We
have not declared any cash dividends on our common stock during the last two fiscal years.
39
BUSINESS
Overview
Overview
We are a technology
company that provides software applications for use by insurance administrators in the insurance industry. Our business focuses
primarily on our InsPro Enterprise software application.
We acquired Atiam
Technologies, L.P. on October 1, 2007. This entity, which changed its name to InsPro Technologies, LLC on May 14, 2009, developed,
sells and supports our InsPro Enterprise software application. InsPro Enterprise is a comprehensive, web-based insurance administration
software application, which was introduced by Atiam Technologies, L.P. (now our InsPro Technologies, LLC subsidiary) in 2004.
InsPro Enterprise clients include insurance carriers and third party administrators. We market InsPro Enterprise as a licensed
software application, and we realize revenue from the sale of the software licenses, application service provider fees, software
maintenance fees and consulting and implementation services.
During 2005 through
October 1, 2007 our operations were primarily that of our former Telesales and Insurint businesses. We effectively sold our former
Telesales business in 2009 and our former Insurint business in 2010. Our former Telesales and Insurint businesses are now classified
as part of our discontinued operations.
InsPro Enterprise
Product Evolution and Development
InsPro Technologies,
LLC, or InsPro Technologies, and its predecessor, Systems Consulting Associates, Inc., or SCA, was founded in 1986 by Robert J.
Oakes as a programming and consulting services company. In 1988, SCA entered into a long-term contract with Provident Mutual Insurance
Company to develop, maintain, install, support and enhance IMACS, which was an insurance direct marketing and administration software
system. IMACS was the precursor of InsPro Enterprise. InsPro Technologies dedicated four years, from 2001 to 2005, to developing
its principal product, InsPro Enterprise, which is a comprehensive, scalable and modular web-based insurance marketing, claims
administration and policy servicing platform.
Product and Services
We offer InsPro Enterprise
on both a licensed and an ASP (Application Service Provider) basis. InsPro 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.
During the nine months
ended September 30, 2012, we earned $8,835,150 in revenue. We earned 36% and 12% of our revenue from our two largest InsPro clients.
During 2011, we earned $9,057,816 in revenue. We earned 29% and 20% of our revenue from our two largest InsPro clients.
InsPro Enterprise
incorporates a modular design, which enables the customer to purchase only the functionality needed, thus minimizing the customer's
implementation cost and time necessary to implement InsPro Enterprise. InsPro Enterprise can be rapidly tailored to the requirements
of a wide range of customers from the largest insurance companies and marketing organizations to the smallest third party administrators,
operating in environments ranging from a single server environment to the mainframe installations. InsPro Enterprise currently
supports a wide range of insurance distribution channels, including the Internet, traditional direct marketing, agent-generated,
individual and group plans, worksite and association-booked business, and supports underwritten as well as guaranteed issue insurance
products including long term care, Medicare supplement, critical illness, long and short term disability, whole and term life,
comprehensive major, hospital indemnity and accidental death and dismemberment.
40
An InsPro Enterprise
software license entitles the purchaser to a perpetual license to a copy of the InsPro Enterprise software 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 InsPro Enterprise, paying only for that capacity required to support their business. ASP hosting clients
access an instance of InsPro Enterprise installed on our servers located at InsPro Technologies' offices or at a third party's
site. The ASP Hosting Service can also enable a client to outsource their application management of their perpetually licensed
InsPro Enterprise software to InsPro Technologies.
Software maintenance
fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and the InsPro Enterprise
Help Desk.
Consulting and implementation
services are generally associated with the implementation of an 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.
InsPro Enterprise
software agreements with our clients often involve 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 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. Maintenance revenue, which pertains to post-contract customer support including technical support
and unspecified when-and-if available software upgrades, is recognized ratably over the maintenance agreement term. 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.
Sales, Marketing and Operations
InsPro Technologies
markets its products and services directly to prospective insurance carriers and third party administrators via trade shows, advertising
in industry publications and direct mail.
InsPro Technologies
also provides professional services to its clients, which include InsPro system implementation, legacy system migration to InsPro,
InsPro application management, web development, InsPro help desk and 24x7 hosting service support.
Competition
The market for insurance
policy administration systems and services is very competitive, rapidly evolving, highly fragmented and subject to technological
change. Many of our competitors are more established than we are and have greater name recognition, a larger customer base and
greater financial, technical and marketing resources than InsPro Technologies.
InsPro Technologies
is focused on the senior health, disability, affinity and association segments. InsPro Technologies competes with such concerns
as International Business Machines Corporation (Genelco Software), Computer Sciences Corporation (FutureFirst), LifePro and Fiserv
Inc. (ID3), as well as with such smaller enterprises as Management Data, Inc. To compete we use best practice technologies and
methods incorporated into InsPro Enterprise, which provides customers with a user-friendly, flexible, modular and cost-effective
insurance administrative software system. We also compete on price with a typical InsPro software license fee ranging from $500,000
to $1,700,000. InsPro Enterprise's modular design, scalability and ASP hosting service option makes InsPro Enterprise a
compelling insurance administrative system from small third party administrators to the largest insurance carriers.
41
Employees
As of December 31,
2012 we had 73 full time employees. None of our employees are members of any labor union and we are not a party to any collective
bargaining agreement. We believe that the relationship between our management and our employees is good.
Intellectual Property and Proprietary Rights
We rely on a combination
of trademark, copyright and trade secret laws in the United States and other jurisdictions as well as confidentiality procedures
and contractual provisions to protect our proprietary technology and our brand.
Corporate Information
We were incorporated
under the laws of the state of Nevada on October 21, 2004 as Darwin Resources Corp., or Darwin-NV, an exploration stage company
engaged in mineral exploration. On November 22, 2005, Darwin-NV merged with and into its newly-formed wholly-owned subsidiary,
Darwin Resources Corp., a Delaware corporation, or Darwin-DE, solely for the purpose of changing the company's state of
incorporation from Nevada to Delaware. On November 23, 2005, HBDC II, Inc., a newly-formed wholly-owned subsidiary of Darwin-DE,
was merged with and into Health Benefits Direct Corporation, a privately-held Delaware corporation engaged in direct marketing
and distribution of health and life insurance and related products primarily over the Internet, and the name of the resulting
entity was changed from Health Benefits Direct Corporation to HBDC II, Inc. Following this merger, Darwin-DE changed its name
to Health Benefits Direct Corporation and, as a result, HBDC II, Inc. became our wholly-owned subsidiary. On November 29, 2010,
Health Benefits Direct Corporation changed its name to InsPro Technologies Corporation.
Our principal executive
offices are located at 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087. Our telephone number is (484) 654-2200.
The principal offices of our wholly-owned subsidiary, InsPro Technologies, LLC, are located at 130 Baldwin Tower, Eddystone, PA
19022 and its web site is www.inspro.com.
Investor Information
All periodic and current
reports, registration statements and other material that we are required to file with the Securities and Exchange Commission,
or the Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, may be obtained
free of charge by writing to us at InsPro Technologies Corporation, 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania
19087 or e-mailing us at
finance@inspro.com
. Such documents are available as soon as reasonably practicable after electronic
filing of the material with the Commission. Our Internet websites and the information contained therein or connected thereto are
not intended to be incorporated into this Annual Report on Form 10-K.
The public may also
read and copy any materials we have filed with the Commission at the Commission's Public Reference Room at 100 F Street,
NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission
at 1-800-SEC-0330. The Commission maintains an Internet site, www.sec.gov, which contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the Commission.
Properties
We do not own any
real estate.
We lease 7,414 square
feet of office space in Radnor, Pennsylvania. We lease this office space under a lease agreement with Radnor Properties-SDC, L.P.
The term of the lease commenced on November 1, 2006, and will expire on March 31, 2017. The monthly base rent increases every
12 months, starting at approximately $13,466 and ending at approximately $21,531.
42
We also lease approximately
17,567 square feet of space in Eddystone, Pennsylvania. We lease this office space under a lease agreement with BPG Officer VI
Baldwin Tower L.P. The term of this lease commenced on August 1, 2007, and will expire on January 31, 2017. The monthly rent increases
every 12 months, starting at approximately $8,500 and ending at approximately $27,814.
Legal Proceedings
We are involved in
various investigations, claims and lawsuits arising in the normal conduct of our business, none of which, in our opinion, will
harm our business. We cannot assure 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.
43
MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
Overview
The current operations
of InsPro Technologies Corporation (the "Company", "we", "us" or "our") consist
of the operations of our wholly owned InsPro Technologies, LLC subsidiary ("InsPro Technologies").
InsPro Enterprise
is a comprehensive, web-based insurance administration software application. InsPro Enterprise was introduced by Atiam Technologies,
L.P. (now our InsPro Technologies, LLC subsidiary) 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 the sale of
the software licenses, 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 accounting principles generally accepted in the United States of America. The preparation of these consolidated
financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these
estimates, including those related to allowances for doubtful accounts receivable and long-lived assets such as intangible assets.
Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Significant estimates in 2012 and 2011 include the allowance for doubtful accounts,
stock-based compensation, the useful lives of property and equipment and intangible assets, accrued expenses pertaining to abandoned
facilities, warrant liability and revenue recognition. Actual results may differ from these estimates under different assumptions
or conditions.
InsPro Technologies
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 InsPro Technologies' servers located at InsPro Technologies' office or 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.
InsPro Technologies
revenue is generally recognized under 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.
44
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 module, we allocate the total arrangement fee
among the modules based on the relative fair value of each of the modules.
License revenue allocated
to software products generally is recognized upon delivery of the products or deferred and recognized in future periods to the
extent that an arrangement includes one or more elements to be delivered at a future date and for which fair values have not been
established. Revenue allocated to maintenance agreements is recognized ratably over the maintenance term and revenue allocated
to training and other service elements is recognized as the services are performed.
The unearned portion
of the Company's revenue, which is revenue collected or billed but not yet recognized as earned, has been included in the
consolidated balance sheet as a liability for deferred revenue.
We review the carrying
value of property and equipment and intangible assets for impairment at least annually or whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison
of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property,
if any, exceeds its fair market value.
RESULTS OF OPERATIONS FOR THREE MONTHS
ENDED SEPTEMBER 30, 2012 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2011
Revenues
For the three months ended September 30,
2012 ("Third Quarter 2012"), we earned revenues of $3,372,990 compared to $1,699,802 for the three months ended September
30, 2011 ("Third Quarter 2011"), an increase of $1,673,188 or 98%. Revenues include the following:
For the Three Months Ended
    September 30,
2012
2011
Professional services
$
2,361,674
$
933,017
ASP revenue
752,525
562,374
Maintenance revenue
258,791
197,290
Sub-leasing and other revenue
-
7,121
Total
$
3,372,990
$
1,699,802
·
In Third Quarter
                                                                                                               2012 our professional
                                                                                                               services revenue
                                                                                                               increased $1,428,657
                                                                                                               or 153% as a result
                                                                                                               of higher implementation
                                                                                                               services for four
                                                                                                               new clients in
                                                                                                               2012 partially
                                                                                                               offset by lower
                                                                                                               post implementation
                                                                                                               services for existing
                                                                                                               clients. Implementation
                                                                                                               services included
                                                                                                               assisting clients
                                                                                                               in setting up their
                                                                                                               insurance products
                                                                                                               in InsPro Enterprise,
                                                                                                               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.
45
·
In Third Quarter
                                                                                                               2012 our ASP revenue
                                                                                                               increased $190,151
                                                                                                               or 34% as a result
                                                                                                               of increased fees
                                                                                                               from ongoing and
                                                                                                               recent implementations
                                                                                                               of InsPro Enterprise
                                                                                                               and increased fees
                                                                                                               from several existing
                                                                                                               clients. ASP hosting
                                                                                                               service enables
                                                                                                               a client to either
                                                                                                               lease InsPro Enterprise
                                                                                                               software, paying
                                                                                                               only for that capacity
                                                                                                               required to support
                                                                                                               their business,
                                                                                                               or for a client
                                                                                                               to outsource the
                                                                                                               operation of their
                                                                                                               licensed InsPro
                                                                                                               Enterprise installation
                                                                                                               to the Company.
                                                                                                               ASP hosting clients
                                                                                                               access InsPro Enterprise
                                                                                                               installed on the
                                                                                                               Company's
                                                                                                               owned servers located
                                                                                                               at the Company's
                                                                                                               office or at a
                                                                                                               third party's
                                                                                                               site.
·
In Third Quarter
                                                                                                               2012 our maintenance
                                                                                                               revenue increased
                                                                                                               $61,501 or 31%
                                                                                                               as a result of
                                                                                                               increased fees
                                                                                                               from a client's
                                                                                                               recently implemented
                                                                                                               InsPro Enterprise
                                                                                                               software partially
                                                                                                               offset by decreased
                                                                                                               fees from an existing
                                                                                                               client
·
We earned sub-leasing
                                                                                                               revenue from the
                                                                                                               sub leasing of
                                                                                                               space in our Radnor
                                                                                                               office to a third
                                                                                                               party, which is
                                                                                                               on a month to month
                                                                                                               basis. The Company's
                                                                                                               sublease revenue
                                                                                                               varies month to
                                                                                                               month based on
                                                                                                               the amount of space
                                                                                                               the Company's
                                                                                                               sub-tenant utilized
Cost of Revenues
Our cost of revenues for Third Quarter
2012 was $3,237,929 as compared to $1,587,656 for Third Quarter 2011 for an increase of $1,650,273 or 104% as compared to Third
Quarter 2011. Cost of revenues consisted of the following:
For the Three Months Ended
    September 30,
2012
2011
Salaries, employee benefits and related taxes
$
1,677,420
$
1,131,251
Professional fees
1,382,394
405,495
Rent, utilities, telephone and communications
115,119
85,357
Other cost of revenues
62,996
(34,447
)
$
3,237,929
$
1,587,656
·
In Third Quarter
                                                                                                               2012 our salaries,
                                                                                                               employee benefits
                                                                                                               and related taxes
                                                                                                               component of cost
                                                                                                               of revenues increased
                                                                                                               $546,169 or 48%
                                                                                                               as compared to
                                                                                                               Third Quarter 2011.
                                                                                                               Salaries, employee
                                                                                                               benefits and related
                                                                                                               taxes increased
                                                                                                               primarily a result
                                                                                                               of increased employee
                                                                                                               staffing related
                                                                                                               to the increase
                                                                                                               in the number of
                                                                                                               InsPro Technologies'
                                                                                                               clients and to
                                                                                                               a lesser extent
                                                                                                               as a result of
                                                                                                               $220,691 of post
                                                                                                               employment expense
                                                                                                               pertaining to a
                                                                                                               Separation of Employment
                                                                                                               Agreement and General
                                                                                                               Release between
                                                                                                               the Company and
                                                                                                               InsPro Technologies'
                                                                                                               and a former vice
                                                                                                               president of InsPro
                                                                                                               Technologies.
·
In Third Quarter
                                                                                                               2012 our professional
                                                                                                               fees component
                                                                                                               of cost of revenues
                                                                                                               increased $976,899
                                                                                                               or 241% as compared
                                                                                                               to Third Quarter
                                                                                                               2011. Professional
                                                                                                               fees increased
                                                                                                               as a result of
                                                                                                               increased utilization
                                                                                                               of several outside
                                                                                                               consulting firms,
                                                                                                               which are assisting
                                                                                                               us with modifications
                                                                                                               to InsPro Enterprise's
                                                                                                               functionality and
                                                                                                               new clients'
                                                                                                               implementation
                                                                                                               of InsPro Enterprise.
·
In Third Quarter
                                                                                                               2012 our rent,
                                                                                                               utilities, telephone
                                                                                                               and communications
                                                                                                               component of cost
                                                                                                               of revenues increased
                                                                                                               $29,762 or 35%
                                                                                                               as compared to
                                                                                                               Third Quarter 2011.
                                                                                                               The increase was
                                                                                                               the result of higher
                                                                                                               telephone and communications
                                                                                                               costs and higher
                                                                                                               utilities and building
                                                                                                               expenses pertaining
                                                                                                               to InsPro Technologies
                                                                                                               office.
·
In Third Quarter
                                                                                                               2012 our other
                                                                                                               cost of revenues
                                                                                                               component of cost
                                                                                                               of revenues increased
                                                                                                               $97,443 or 283%
                                                                                                               as compared to
                                                                                                               Third Quarter 2011.
                                                                                                               The increase was
                                                                                                               the result of a
                                                                                                               non recurring $160,029
                                                                                                               expense credit
                                                                                                               in Third Quarter
                                                                                                               2011 pertaining
                                                                                                               to the settlement
                                                                                                               of amounts owed
                                                                                                               to a vendor partially
                                                                                                               offset by cost
                                                                                                               reduction initiatives
                                                                                                               pertaining to computer
                                                                                                               processing. Other
                                                                                                               cost of revenues
                                                                                                               consisted of computer
                                                                                                               processing incurred
                                                                                                               primarily to provide
                                                                                                               ASP hosting services,
                                                                                                               hardware and software,
                                                                                                               travel and entertainment,
                                                                                                               and office expenses.
46
Gross Profit (Loss)
As a result of the aforementioned factors,
we reported a gross profit of $135,061 in Third Quarter 2012 as compared to a gross profit of $112,146 in Third Quarter 2011.
Selling, General and Administrative Expenses
Our selling, general and administrative
expenses for Third Quarter 2012 was $1,375,576 as compared to $1,293,373 for Third Quarter 2011 for an increase of $82,202 or
6% as compared to Third Quarter 2011. Selling, marketing and administrative expenses consisted of the following:
For the Three Months Ended September 30,
2012
2011
Salaries, employee benefits and related taxes
$
580,579
$
765,496
Advertising and other marketing
84,802
27,199
Depreciation and amortization
255,316
166,521
Rent, utilities, telephone and communications
99,652
93,526
Professional fees
176,905
99,199
Other general and administrative
178,323
141,432
$
1,375,577
$
1,293,373
In Third Quarter 2012 we incurred salaries,
employee benefits and related taxes of $580,579 as compared to $765,496 for Third Quarter 2011, a decrease of $184,917 or 24%.
The decrease is primarily the result of lower corporate staffing.
Depreciation and amortization expense
consisted of the following:
For the Three Months Ended
    September 30,
2012
2011
Amortization of intangibles acquired as a result of the InsPro acquisition
$
86,683
$
86,684
Depreciation expense
168,633
79,837
Total
$
255,316
$
166,521
·
We incurred
                                                                                                              amortization expense
                                                                                                              pertaining to the
                                                                                                              intangible assets
                                                                                                              acquired from InsPro
                                                                                                              Technologies (formerly
                                                                                                              Atiam Technologies,
                                                                                                              L.P.) on October
                                                                                                              1, 2007.
·
In Third Quarter
                                                                                                              2012 we incurred
                                                                                                              depreciation expense
                                                                                                              of $168,632 as compared
                                                                                                              to $79,837 in Third
                                                                                                              Quarter 2011. The
                                                                                                              increase was primarily
                                                                                                              due to assets acquired
                                                                                                              on April 30, 2012,
                                                                                                              whereby InsPro Technologies
                                                                                                              entered into an
                                                                                                              Application Provider
                                                                                                              Hosting Agreement
                                                                                                              ("Micro Focus
                                                                                                              Agreement")
                                                                                                              with Micro Focus
                                                                                                              (US) Inc. ("Micro
                                                                                                              Focus"). As
                                                                                                              part of the Micro
                                                                                                              Focus Agreement
                                                                                                              InsPro Technologies
                                                                                                              expanded its perpetual
                                                                                                              license rights to
                                                                                                              a Micro Focus software
                                                                                                              product used by
                                                                                                              InsPro Technologies
                                                                                                              in conjunction with
                                                                                                              hosting its InsPro
                                                                                                              Enterprise software.
In Third Quarter 2012 our professional
fees increased as a result of higher legal fees associated with our Loan and Security Agreement with Silicon Valley Bank, technology
consulting expenses, human resource management consulting and accounting fees for tax preparation services.
47
In Third Quarter 2012 our other expense
increased primarily as a result of increased maintenance expense on computer hardware and software especially costs associated
with assets acquired in connection with the Micro Focus Agreement.
Loss from operations
As a result of the aforementioned factors,
we reported a loss from operations of $1,240,516 in Third Quarter 2012 as compared to a loss from operations of $1,181,227 in
Third Quarter 2011.
Gain on discontinued operations
Results from discontinued operations were
as follows:
For the Three Months Ended September
    30,
2012
2011
Revenues:
Commission and other revenue from carriers
$
14,135
$
34,310
Transition policy commission pursuant to the Agreement
131,579
176,028
145,714
210,338
Operating expenses:
Other general and administrative
6,896
11,809
6,896
11,809
Gain from discontinued operations
$
138,818
$
198,529
For Third Quarter 2012 we earned revenues
from discontinued operations of $145,714 as compared to $210,338 in the Third Quarter 2011, a decrease of $64,624 or 31%. Revenues
include the following:
·
In Third Quarter
                                                                                                               2012 our commission
                                                                                                               and other revenue
                                                                                                               from carriers decreased
                                                                                                               due to the declines
                                                                                                               in our telesales
                                                                                                               call center produced
                                                                                                               agency business.
                                                                                                               We continue to
                                                                                                               receive commissions
                                                                                                               from carriers other
                                                                                                               than certain carriers
                                                                                                               and commissions
                                                                                                               on policies other
                                                                                                               than transferred
                                                                                                               policies, which
                                                                                                               were transferred
                                                                                                               to the acquirer.
·
On February
                                                                                                               20, 2009, the Company
                                                                                                               entered into and
                                                                                                               completed the sale
                                                                                                               of the agency business
                                                                                                               to eHealth Insurance
                                                                                                               Services, Inc.,
                                                                                                               an unaffiliated
                                                                                                               third party, pursuant
                                                                                                               to the terms of
                                                                                                               a Client Transition
                                                                                                               Agreement. In Third
                                                                                                               Quarter 2012 our
                                                                                                               transition policy
                                                                                                               commission pursuant
                                                                                                               to the agreement
                                                                                                               decreased due to
                                                                                                               the declines in
                                                                                                               our telesales call
                                                                                                               center produced
                                                                                                               agency business.
Total operating expenses of discontinued
operations for Third Quarter 2012 was $6,896 as compared to $11,809 for Third Quarter 2011. The primary reason for the decrease
is the expiration of the lease for our former Florida office and the elimination of rent and other associated costs.
Gain from discontinued operations
As a result of the aforementioned factors,
we reported a gain from discontinued operations of $138,818 or $0.00 gain from discontinued operations per share in Third Quarter
2012 as compared to a gain from discontinued operations of $198,529 or $0.01 gain from discontinued operations per share in Third
Quarter 2011.
48
Other income (expenses)
Effective September 30, 2012, the full
ratchet anti-dilution provisions pertaining to warrants issued during 2009 and 2010 expired. Consequently, the Company has determined
that effective September 30, 2012, all of the Company's issued and outstanding warrants qualify for a scope exception under
ASC 815-40-15 as they are indexed to the Company's stock. Effective September 30, 2012, the Company recorded the elimination
of the warrant liability by recording a debit to warrant liability in the amount of $6,182,309 and a credit to additional paid
in capital in the amount of $6,182,309. The gain in the Third Quarter 2011 represents the mark to market adjustments for the change
in fair value of warrants, which contain provisions that adjust the exercise price of these warrants in the event we issue our
common stock or other securities convertible into our common stock at price lower than the exercise price of these warrants.
Interest income is attributable to interest-bearing
cash deposits. The decrease in interest income is the result of a decline in interest rates and a decline in cash balances.
Interest expense is attributable to interest
on accounts payable, capital leases and note payable for premium financing on a portion of the Company's insurance coverages.
The increase in interest expense is the result of an increase in notes payable for premium financing.
RESULTS OF OPERATIONS FOR NINE MONTHS
ENDED SEPTEMBER 30, 2012 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2011
Revenues
For the nine months ended September 30,
2012 ("2012 To Date"), we earned revenues of $8,835,150 as compared to $5,636,023 for the nine months ended September
30, 2011 ("2011 To Date"), an increase of $3,199,127 or 57%. Revenues include the following:
For the Nine Months Ended September
    30,
2012
2011
Professional services
$
5,824,189
$
3,231,819
ASP revenue
2,299,290
1,458,578
Sales of software licenses
-
335,000
Maintenance revenue
704,021
592,365
Sub-leasing and other revenue
7,650
18,261
Total
$
8,835,150
$
5,636,023
·
In 2012 To Date
                                                                                                              our professional
                                                                                                              services revenue
                                                                                                              increased $2,592,370
                                                                                                              or 80% as a result
                                                                                                              of higher implementation
                                                                                                              services from four
                                                                                                              new clients in 2012
                                                                                                              partially offset
                                                                                                              by lower post implementation
                                                                                                              services for existing
                                                                                                              clients. Implementation
                                                                                                              services included
                                                                                                              assisting clients
                                                                                                              in setting up their
                                                                                                              insurance products
                                                                                                              in InsPro Enterprise,
                                                                                                              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 2012 To Date
                                                                                                              our ASP revenue
                                                                                                              increased $840,712
                                                                                                              or 57% as a result
                                                                                                              of increased fees
                                                                                                              from recent implementations
                                                                                                              of InsPro Enterprise
                                                                                                              to several clients
                                                                                                              and increased fees
                                                                                                              from several existing
                                                                                                              clients. ASP hosting
                                                                                                              service enables
                                                                                                              a client to either
                                                                                                              lease InsPro Enterprise
                                                                                                              software, paying
                                                                                                              only for that capacity
                                                                                                              required to support
                                                                                                              their business,
                                                                                                              or for a client
                                                                                                              to outsource the
                                                                                                              operation of their
                                                                                                              licensed InsPro
                                                                                                              Enterprise installation
                                                                                                              to the Company.
                                                                                                              ASP hosting clients
                                                                                                              access InsPro Enterprise
                                                                                                              installed on the
                                                                                                              Company's
                                                                                                              owned servers located
                                                                                                              at the Company's
                                                                                                              office or at a third
                                                                                                              party's site.
49
·
In 2011 To Date
                                                                                                              we earned $335,000
                                                                                                              of license fee revenue,
                                                                                                              which represented
                                                                                                              a license fee recognized
                                                                                                              upon the completion
                                                                                                              of the implementation
                                                                                                              of InsPro Enterprise
                                                                                                              for a client.
·
In 2012 To Date
                                                                                                              our maintenance
                                                                                                              revenue increased
                                                                                                              $111,656 or 19%
                                                                                                              as a result of increased
                                                                                                              fees from a client's
                                                                                                              recently implemented
                                                                                                              InsPro Enterprise
                                                                                                              software partially
                                                                                                              offset by decreased
                                                                                                              fees from an existing
                                                                                                              client.
·
We earned sub-leasing
                                                                                                              revenue from the
                                                                                                              sub leasing of space
                                                                                                              in our Radnor office
                                                                                                              to third parties,
                                                                                                              which are on a month
                                                                                                              to month basis.
                                                                                                              The Company's
                                                                                                              sublease revenue
                                                                                                              varies month to
                                                                                                              month based on the
                                                                                                              amount of space
                                                                                                              the Company's
                                                                                                              sub-tenants utilizes.
                                                                                                              The Company's
                                                                                                              sub-tenant ceased
                                                                                                              sub-leasing our
                                                                                                              Radnor office during
                                                                                                              the second quarter
                                                                                                              of 2012.
Cost of Revenues
Our cost of revenues for 2012 To Date
was $7,844,648 as compared to $5,035,330 for 2011 To Date for an increase of $2,809,318 or 56% as compared to 2011 To Date. Cost
of revenues consisted of the following:
For the Nine Months Ended September
    30,
2012
2011
Salaries, employee benefits and related taxes
$
4,327,799
$
3,364,826
Professional fees
3,011,577
1,191,263
Rent, utilities, telephone and communications
288,331
255,750
Other cost of revenues
216,941
223,491
$
7,844,648
$
5,035,330
·
In 2012 To Date
                                                                                                              our salaries, employee
                                                                                                              benefits and related
                                                                                                              taxes component
                                                                                                              of cost of revenues
                                                                                                              increased $962,973
                                                                                                              or 29% as compared
                                                                                                              to 2011 To Date.
                                                                                                              Salaries, employee
                                                                                                              benefits and related
                                                                                                              taxes increased
                                                                                                              primarily a result
                                                                                                              of increased employee
                                                                                                              staffing related
                                                                                                              to the increase
                                                                                                              in the number of
                                                                                                              InsPro Technologies'
                                                                                                              clients and to a
                                                                                                              lesser extent as
                                                                                                              a result of $220,691
                                                                                                              of post employment
                                                                                                              expense pertaining
                                                                                                              to a Separation
                                                                                                              of Employment Agreement
                                                                                                              and General Release
                                                                                                              between the Company
                                                                                                              and InsPro Technologies'
                                                                                                              and a former vice
                                                                                                              president of InsPro
                                                                                                              Technologies recorded
                                                                                                              in Third Quarter
                                                                                                              2012.
·
In 2012 To Date
                                                                                                              our professional
                                                                                                              fees component of
                                                                                                              cost of revenues
                                                                                                              increased $1,820,314
                                                                                                              or 153% as compared
                                                                                                              to 2011 To Date.
                                                                                                              Professional fees
                                                                                                              increased as a result
                                                                                                              of increased utilization
                                                                                                              of several outside
                                                                                                              consulting firms,
                                                                                                              which are assisting
                                                                                                              us with modifications
                                                                                                              to InsPro Enterprise's
                                                                                                              functionality and
                                                                                                              new clients'
                                                                                                              implementation of
                                                                                                              InsPro Enterprise.
·
In 2012 To Date
                                                                                                              our rent, utilities,
                                                                                                              telephone and communications
                                                                                                              component of cost
                                                                                                              of revenues increased
                                                                                                              $32,581 or 13% as
                                                                                                              compared to 2011
                                                                                                              To Date. The increase
                                                                                                              was the result of
                                                                                                              higher telephone
                                                                                                              and communications
                                                                                                              costs and higher
                                                                                                              utilities and building
                                                                                                              expenses pertaining
                                                                                                              to InsPro Technologies
                                                                                                              office.
·
In 2012 To Date
                                                                                                              our other cost of
                                                                                                              revenues component
                                                                                                              of cost of revenues
                                                                                                              decreased $6,550
                                                                                                              or 3% as compared
                                                                                                              to 2011 To Date.
                                                                                                              The decrease was
                                                                                                              the result of lower
                                                                                                              travel expenses.
                                                                                                              Other cost of revenues
                                                                                                              consisted of 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 $990,502 in 2012 To Date as compared to a gross profit of $600,693 in 2011 To Date.
50
Selling, General and Administrative Expenses
Our selling, general and administrative
expenses for 2012 To Date was $3,689,997 as compared to $3,665,627 for 2011 To Date for an increase of $24,370 or 1% as compared
to 2011 To Date. Selling, marketing and administrative expenses consisted of the following:
For the Nine Months Ended September
    30,
2012
2011
Salaries, employee benefits and related taxes
$
1,735,783
$
2,053,283
Advertising and other marketing
145,119
81,243
Depreciation and amortization
717,072
521,309
Rent, utilities, telephone and communications
281,353
282,363
Professional fees
385,407
307,856
Other general and administrative
425,264
419,573
$
3,689,998
$
3,665,627
In 2012 To Date we incurred salaries,
employee benefits and related taxes of $1,735,783 as compared to $2,053,283 for 2011 To Date, a decrease of $317,500 or 16%. The
decrease is primarily the result of lower corporate staffing.
Depreciation and amortization expense
consisted of the following:
For the Nine Months Ended
    September 30,
2012
2011
Amortization of intangibles acquired as a result of the InsPro acquisition
$
260,050
$
260,052
Depreciation expense
457,022
261,257
Total
$
717,072
$
521,309
·
We incurred
                                                                                                               amortization expense
                                                                                                               pertaining to the
                                                                                                               intangible assets
                                                                                                               acquired from InsPro
                                                                                                               Technologies (formerly
                                                                                                               Atiam Technologies,
                                                                                                               L.P.) on October
                                                                                                               1, 2007.
·
In 2012 To
                                                                                                               Date we incurred
                                                                                                               depreciation expense
                                                                                                               of $457,021 as
                                                                                                               compared to $261,257
                                                                                                               in 2011 To Date.
                                                                                                               The increase was
                                                                                                               primarily due to
                                                                                                               assets acquired
                                                                                                               pursuant to the
                                                                                                               Micro Focus Agreement
                                                                                                               as described above.
                                                                                                               In addition, 2012
                                                                                                               To Date included
                                                                                                               $41,896 of additional,
                                                                                                               accelerated depreciation
                                                                                                               expense as a result
                                                                                                               of InsPro Technologies'
                                                                                                               abandonment of
                                                                                                               certain furniture
                                                                                                               and equipment in
                                                                                                               the second quarter
                                                                                                               of 2012 when InsPro
                                                                                                               Technologies moved
                                                                                                               into newly furnished
                                                                                                               office space in
                                                                                                               a different section
                                                                                                               of Baldwin Towers.
In 2012 To Date our professional fees
increased as a result of higher legal fees associated with our Loan and Security Agreement with Silicon Valley Bank, technology
consulting expenses and human resource management consulting services.
In 2012 To Date our other expense decreased
primarily as a result of cost reductions in our corporate areas including lower insurance costs due to the elimination of the
Company's former Florida office.
Loss from operations
As a result of the aforementioned factors,
we reported a loss from operations of $2,699,495 in 2012 To Date as compared to a loss from operations of $3,064,934 in 2011 To
Date.
51
Gain on discontinued operations
Results from discontinued operations were
as follows:
For the Nine Months Ended
    September 30,
2012
2011
Revenues:
Commission and other revenue from carriers
$
64,001
$
145,278
Transition policy commission pursuant to the Agreement
374,790
564,697
Sub-lease revenue
-
150,100
438,791
860,075
Operating expenses:
Salaries, employee benefits and related taxes
-
11,118
Rent, utilities, telephone and communications
-
171,510
Professional fees
-
(1,961
)
Other general and administrative
29,697
41,374
29,697
222,041
Gain (loss) from discontinued operations
$
409,094
$
638,034
For 2012 To Date we earned revenues from
discontinued operations of $438,791 as compared to $860,075 in the 2011 To Date, a decrease of $421,284 or 49%. Revenues include
the following:
·
In 2012 To
                                                                                                               Date our commission
                                                                                                               and other revenue
                                                                                                               from carriers decreased
                                                                                                               due to the declines
                                                                                                               in our telesales
                                                                                                               call center produced
                                                                                                               agency business.
                                                                                                               We continue to
                                                                                                               receive commissions
                                                                                                               from carriers other
                                                                                                               than certain carriers
                                                                                                               and commissions
                                                                                                               on policies other
                                                                                                               than transferred
                                                                                                               policies, which
                                                                                                               were transferred
                                                                                                               to the acquirer.
·
On February
                                                                                                               20, 2009, the Company
                                                                                                               entered into and
                                                                                                               completed the sale
                                                                                                               of the agency business
                                                                                                               to eHealth Insurance
                                                                                                               Services, Inc.,
                                                                                                               an unaffiliated
                                                                                                               third party, pursuant
                                                                                                               to the terms of
                                                                                                               a Client Transition
                                                                                                               Agreement. In 2012
                                                                                                               To Date our transition
                                                                                                               policy commission
                                                                                                               pursuant to the
                                                                                                               agreement decreased
                                                                                                               due to the declines
                                                                                                               in our telesales
                                                                                                               call center produced
                                                                                                               agency business.
Total operating expenses of discontinued
operations for 2012 To Date was $29,697 as compared to $222,041 for 2011 To Date. The primary reason for the decrease is the expiration
of the lease for our former Florida office and the elimination of rent and other associated costs.
Gain from discontinued operations
As a result of the aforementioned factors,
we reported a gain from discontinued operations of $409,094 or $0.01 gain from discontinued operations per share in 2012 To Date
as compared to a gain from discontinued operations of $638,034 or $0.02 gain from discontinued operations per share in 2011 To
Date.
Other income (expenses)
Effective September 30, 2012, the full
ratchet anti-dilution provisions pertaining to warrants issued during 2009 and 2010 expired. Consequently, the Company has determined
that effective September 30, 2012, all of the Company's issued and outstanding warrants qualify for a scope exception under
ASC 815-40-15 as they are indexed to the Company's stock. Effective September 30, 2012, the Company recorded the elimination
of the warrant liability by recording a debit to warrant liability in the amount of $6,182,309 and a credit to additional paid
in capital in the amount of $6,182,309. The loss in 2012 To Date and the gain in the 2011 To Date represents the mark to market
adjustments for the change in fair value of warrants, which contain provisions that adjust the exercise price of these warrants
in the event we issue our common stock or other securities convertible into our common stock at price lower than the exercise
price of these warrants.
52
Interest income is attributable to interest-bearing
cash deposits. The decrease in interest income is the result of a decline in interest rates and a decline in cash balances.
Interest expense is attributable to interest
on account payable, capital leases and note payable for premium financing on a portion of the Company's insurance coverages.
The increase in interest expense is the result of an increase in the note payable for premium financing.
Net loss
As a result of these factors discussed
above, we reported a net loss of $6,864,779 or $0.17 net loss per share in 2012 To Date as compared to a net loss of $1,496,548
or $0.04 loss per share in 2011 To Date.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2012, we had a cash balance
of $2,091,032 and working capital of $477,612.
Net cash used by operations was $676,379
in 2012 To Date as compared to $1,704,182 cash used in 2011 To Date. The improvement in cash flow from operations was primarily
the result of increased collections of earned and unearned revenue in 2012 as compared to 2011. Impacting our cash flow from operations
was our net loss of $6,864,779 in 2012 To Date as compared to our net loss of $1,496,548 in 2011 To Date and:
·
Increases in
                                                                                                               accounts receivable
                                                                                                               of $938,141 in
                                                                                                               2012 To Date, which
                                                                                                               are primarily the
                                                                                                               result of increased
                                                                                                               billings in 2012
                                                                                                               To Date to clients
                                                                                                               primarily for professional
                                                                                                               services.
·
Increases in
                                                                                                               prepaid expenses
                                                                                                               in 2012 To Date
                                                                                                               of $168,494, which
                                                                                                               are primarily the
                                                                                                               result of premium
                                                                                                               obligations for
                                                                                                               various insurance
                                                                                                               policies and expenditures
                                                                                                               for software maintenance
                                                                                                               agreements.
·
Increases in
                                                                                                               accounts payable
                                                                                                               of $738,392 in
                                                                                                               2012 To Date, which
                                                                                                               are primarily the
                                                                                                               result of increased
                                                                                                               utilization of
                                                                                                               outside IT consulting
                                                                                                               firms and the associated
                                                                                                               increase in the
                                                                                                               amounts owed to
                                                                                                               these vendors.
·
Increases in
                                                                                                               deferred revenue
                                                                                                               of $1,049,539 in
                                                                                                               2012 To Date, which
                                                                                                               are primarily the
                                                                                                               result of unearned
                                                                                                               license fees and
                                                                                                               to a lesser extent
                                                                                                               annual maintenance
                                                                                                               fees to various
                                                                                                               clients 2012 To
                                                                                                               Date.
·
Decreases in
                                                                                                               net assets of discontinued
                                                                                                               operations of $16,185
                                                                                                               in 2012 To Date,
                                                                                                               which are primarily
                                                                                                               the result of the
                                                                                                               collection of commission
                                                                                                               amounts owed pertaining
                                                                                                               to our former agency
                                                                                                               business and amounts
                                                                                                               owed from the buyer
                                                                                                               of our Insurint
                                                                                                               business.
In addition to cash used in operating
activities we incurred the following non cash gain and expenses in 2012 To Date, which were included in our net income (loss),
including:
·
Recorded depreciation
                                                                                                               and amortization
                                                                                                               expense of $717,072
                                                                                                               and $521,309 in
                                                                                                               2012 To Date and
                                                                                                               2011 To Date, respectively.
·
Recorded stock-based
                                                                                                               compensation and
                                                                                                               consulting expense
                                                                                                               of $72,632 and
                                                                                                               $250,354 in 2012
                                                                                                               To Date and 2011
                                                                                                               To Date, respectively.
·
Recognized
                                                                                                               a loss on change
                                                                                                               in fair value of
                                                                                                               warrants liabilities
                                                                                                               of $4,508,078 and
                                                                                                               a gain of $929,671
                                                                                                               in 2012 To Date
                                                                                                               and 2011 To Date,
                                                                                                               respectively.
53
Net cash used by investing activities
in 2012 To Date was $939,022 as compared to $98,235 in 2011 To Date. The increase is primarily the result of the partial payments
for computer software acquired from Micro Focus in connection with existing and new clients utilizing the Company's hosting
service for InsPro Enterprise.
Net cash provided by financing activities
in 2012 To Date was $4,380 as compared to cash provided in 2011 of $1,030,558.
·
We entered
                                                                                                               into two notes
                                                                                                               payable to finance
                                                                                                               insurance premiums
                                                                                                               for two of the
                                                                                                               Company's
                                                                                                               various corporate
                                                                                                               insurance coverages
                                                                                                               during 2012.
·
InsPro Technologies
                                                                                                               has entered into
                                                                                                               various capital
                                                                                                               lease obligations
                                                                                                               to purchase equipment
                                                                                                               used for operations.
·
During the
                                                                                                               first quarter of
                                                                                                               2011 the letters
                                                                                                               of credit pertaining
                                                                                                               to the former leases
                                                                                                               for our Florida
                                                                                                               and New York offices,
                                                                                                               which were collateralized
                                                                                                               with assets in
                                                                                                               the form of a money
                                                                                                               market account
                                                                                                               and certificate
                                                                                                               of deposit and
                                                                                                               classified as restricted
                                                                                                               cash as of December
                                                                                                               31, 2010, were
                                                                                                               terminated as a
                                                                                                               result of the expiration
                                                                                                               of these leases.
                                                                                                               As a result of
                                                                                                               the termination
                                                                                                               of these letters
                                                                                                               of credit the restrictions
                                                                                                               on the money market
                                                                                                               account and certificate
                                                                                                               of deposit were
                                                                                                               lifted, and $1,152,573
                                                                                                               was reclassified
                                                                                                               from restricted
                                                                                                               cash to cash during
                                                                                                               the first quarter
                                                                                                               of 2011.
On October 3, 2012, the Company together
with InsPro Technologies (the "Borrowers") entered into a Loan and Security Agreement (the "Loan Agreement")
with Silicon Valley Bank ("SVB").
The Loan Agreement established a revolving
credit facility for the Borrowers in the principal amount of up to $2,000,000 (the "Revolving Facility"). Availability
under the Revolving Facility is tied to a borrowing base formula that is based on 80% of the Borrowers' eligible accounts
receivable, plus 20% of the aggregate unrestricted cash balanced held at SVB (the "Borrowing Base"). Advances under
the Revolving Facility may be repaid and reborrowed in accordance with the Loan Agreement. No advances were made at closing however
an advance of $525,000 was made on October 15, 2012. Pursuant to the Loan Agreement, the Borrowers agreed to pay to SVB the outstanding
principal amount of all advances (the "Advances"), the unpaid interest thereon, and all other obligations incurred
with respect to the Loan Agreement on October 3, 2014. Interest will accrue on the unpaid principal balance of the Advances at
a floating per annum rate equal to 1% above the prime rate. During an event of default the rate of interest will increase 5% above
the otherwise applicable rate, until such event of default is cured or waived. All accrued and unpaid interest is payable monthly
on the first day of each month.
Subject to certain exceptions, the Loan
Agreement contains covenants prohibiting the Borrowers from, among other things: (a) conveying, selling, leasing, transferring
or otherwise disposing of their properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the
business currently engaged in or reasonably related thereto; (d) entering into any merger or consolidation, or acquiring all or
substantially all of the capital stock or property of another entity; (e) becoming liable for any indebtedness; (f) allowing any
lien or encumbrance on any of their property; (g) paying any dividends; and (h) making payment on subordinated debt. Further,
the Borrowers must maintain a minimum "adjusted quick ratio," tested as of the last day of each month, of at least
1.75:1.00 commencing August 31, 2012. The adjusted quick ratio (the "AQR") is the ratio of (x) the Borrowers'
consolidated, unrestricted cash maintained with SVB (and, for 90 days after the closing date, maintained with PNC Bank) plus net
unbilled accounts receivable to (y) the Borrowers' liabilities to SVB plus, without duplication, the aggregate amount of
the Borrowers' liabilities that mature within 1 year (excluding subordinated debt), minus the current portion of deferred
revenue.
The Loan is secured by a first priority
perfected security interest in substantially all of the assets of the Borrowers, excluding the intellectual property of the Borrowers.
The Loan Agreement contains a negative covenant prohibiting the Borrowers from granting a security interest in their intellectual
property to any party.
Under the terms of the Loan Agreement,
the Borrowing Base under the Revolving Facility was $1,563,414 and the AQR was 1.64 as of September 30, 2012, which is below the
required 1.75:1.00 AQR. The Company has notified SVB that the AQR as of September 30, 2012, is lower than the required amount,
which represented a default on the Loan Agreement by the Company. On November 13, 2012 SVB agreed to waive the default and the
Company and SVB agreed to amend the Loan Agreement to lower the Company's requirement to maintain an AQR of 1.75 to 1.0
to 1.50 to 1.0 commencing with the month ending November 30, 2012 and as of the last day of each month thereafter.
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.
54
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
The following table
sets forth the name, age, and position of each of our executive officers and directors.
Directors serve until
the next annual meeting of stockholders, until their successors are elected or appointed or qualified, or until their prior resignation
or removal. Our executive officers are appointed by, and serve at the discretion of, our board of directors.
Name
Age
Position
Donald R. Caldwell
66
Chairman
Brian Adamsky
51
Director
John Harrison
69
Director
Michael Azeez
55
Director
Robert Oakes
54
Director
Sanford Rich
54
Director
L.J. Rowell
80
Director
Paul Soltoff
58
Director
Anthony R. Verdi
63
Chief Executive Officer, Chief Financial Officer and Chief Operating Officer
    and Director
Edmond J. Walters
51
Director
Brian K. Adamsky
,
51.
Mr. Adamsky has worked at Cross Atlantic Capital Partners, Inc. since its inception in 1999, and presently serves
as its Secretary/Treasurer and Chief Financial Officer. During his years at Cross Atlantic, he has served as a director at numerous
of its portfolio companies including Profectus BioSciences, Inc. and Rubicon Technology, Inc. From 1996 to 1999, Mr. Adamsky was
Chief Financial Officer at Megasystems, Inc., a portfolio company of Safeguard Scientifics, Inc. Prior to Megasystems, Mr. Adamsky
worked in a variety of financial and operational roles at companies in the Philadelphia region. Mr. Adamsky worked in public accounting
at Touche Ross & Company (now Deloitte & Touche) and is a Certified Public Accountant in the Commonwealth of Pennsylvania.
Mr. Adamsky's experience serving as a director and officer of numerous companies qualifies him to be a member of our board
of directors.
Michael Azeez
,
age 55, has served as one of our directors since December 2011. Mr. Azeez is a managing member of Azeez Investors, LLC. Mr. Azeez
co-founded Unitel in 1988 and served as its President from 1988 until 2002. Mr. Azeez served in various executive positions at
American Cellular Network Corporation from 1982 until 1988 and his positions included Vice President, General Manager of various
divisions and assistant to the President. Mr. Azeez is a member of the board of directors of Acrometis Strategic Software Services,
which provides software solutions to insurance companies for workers compensation claims management. Mr. Azeez is a member of
the board of directors of the Friends of Yemin Orde. Mr. Azeez is the Chairman and founder of the Sam Azeez Museum of Woodbine
Heritage. Mr. Azeez's significant executive and business development experience in the telecommunications industry and his
civic service for various non-profit organizations qualifies him to be a member of our board of directors.
Donald R. Caldwell
,
66, has served as one of our directors and as one of the Co-Chairman of our board of directors from April 2008 through November
24, 2009 and as our Chairman since November 24, 2009. Mr. Caldwell founded Cross Atlantic Capital Partners, Inc. in 1999, and
presently serves as its Chairman and Chief Executive Officer. He has served as a Director at Rubicon Technology, Inc. since 2001
where he chairs the Compensation Committee; and at Diamond Management & Technology Consultants, Inc. (NASDAQ) from 1994 until
its sale to PriceWaterhouse in 2010, and where he served as a member of their Compensation Committee, Audit Committee and as the
lead director since 2006. Mr. Caldwell is a Director and a member of the Compensation and Audit Committees and chairman of the
Executive Committee of Quaker Chemical Corporation (NYSE), and a member of the Compensation Committee and the board of Voxware,
Inc. (NASDAQ), a supplier of voice driven solutions. Mr. Caldwell is a director, chairman of the audit committee and member of
the compensation committee of Lighting Gaming, Inc. since 2005. Mr. Caldwell was a director of Kanbay International, Inc. from
1999 through 2007 when it was purchased by CapGemini. From 1996 to 1999, Mr. Caldwell was President and Chief Operating Officer
and a Director of Safeguard Scientifics, Inc. Mr. Caldwell is a Certified Public Accountant in the State of New York. Mr. Caldwell's
experience serving as a director and officer of numerous public companies qualifies him to be a member of our board of directors.
55
John Harrison
,
69, has served as one of our directors since November 2005. He is a founding Partner and Executive Director of The Keystone Equities
Group, Inc., a full service investment banking group and a registered NASD broker-dealer founded in 2003. Mr. Harrison also is
a Managing Director of Covenant Partners, a hedge fund that invests in direct marketing services companies. In 1999, Mr. Harrison
became a founding Partner of Emerging Growth Equities, Ltd., a full service investment banking and brokerage firm focused on raising
capital for emerging technology companies addressing high-growth industry sectors. From 1985 to 2000, Mr. Harrison served as President
of DiMark, a direct marketing agency that was acquired by Harte-Hanks in 1996. He also has held senior management positions with
CUNA Mutual, RLI Insurance and CNA Insurance where he directed their direct marketing practice. Mr. Harrison was Chairman of Professional
Insurance Marketing Association (PIMA) and Chairman of the DMA's Financial Services Council. Mr. Harrison's extensive experience
in the financial and insurance sectors qualifies him to be a member of our board of directors.
Robert J. Oakes
,
54, has served as one of our directors since August 2008. He has served as the President and CEO of our InsPro Technologies, LLC
subsidiary since our acquisition of the subsidiary on October 1, 2007. From 1986 until 2007 Mr. Oakes was President and Chief
Executive Officer of the general partner of Atiam Technologies L.P. (now known as InsPro Technologies, LLC), a software development
and servicing company that developed, expanded and serviced products to serve the insurance and financial services markets. Mr.
Oakes founded InsPro Technologies under the name "Atiam" in 1986 and led the company's effort to design and
develop its flagship product, InsPro. InsPro is a state-of-the-art Insurance, Marketing, Administration and Claim System that
provides end-to-end insurance processing, technology and support, for a broad range of life, health and disability products. Mr.
Oakes' experience in the development of our flagship product and the management of InsPro Technologies, LLC qualifies him
to be a member of our board of directors.
Sanford Rich
,
54, has served as one of our directors since April 2006. Mr. Rich has served as a Director and Chief Executive Officer at In the
Car, LLC since October 2011. He is a Director and the Audit Committee Chairman at Aspen Group Inc., an online University. Mr.
Rich also has served as a FINRA Registered Managing Director with Whitemarsh Capital Advisors LLC, a broker-dealer, since February
2009. Mr. Rich served as a director, audit committee chairman and SEC qualified audit committee financial expert of Interclick,
Inc. from 2007 to 2010. From 1995 to May 2008 Mr. Rich was Director, Senior Vice President and Portfolio Manager at GEM Capital
Management Inc. From 1993 to 1995, Mr. Rich was a Managing Director of High Yield Finance, Capital Markets & North American
Loan Syndicate, Sales and Trading at Citicorp Securities. From 1985 to 1993, he served as Managing Director of Debt Capital Markets
at Merrill Lynch. From 1978 to 1985, Mr. Rich held various Analyst positions in numerous companies, including Cypress Capital
Management, Inc. (Vice President and Analyst from 1983 to 1985), FIAMCO (Distressed/High Yield Bond Analyst from 1981 to 1983),
Progressive Corporation (Financial Analyst from 1980 to 1981) and Prescott, Ball and Turben (Distressed/High Yield Bond Analyst
from 1978 to 1980). Mr. Rich's 30+ years of experience in the financial sector qualifies him to be a member of our board
of directors.
L.J. Rowell
,
80, has served as one of our directors since April 2006. He is a past President (1984-1996), Chief Executive Officer (1991-1996)
and Chairman of the Board (1993-1996) of Provident Mutual Life Insurance Company, where he also held various other executive and
committee positions from 1980 until his retirement in 1996. Mr. Rowell served on the board of directors of the PMA Group from
1992 until 2009. Mr. Rowell served on the board of directors of the Southeast Pennsylvania Chapter of the American Red Cross,
the American College, The Foundation at Paoli and The Milton S. Hershey Medical Center. Mr. Rowell also has served on the Board
of Trustees of The Pennsylvania State University as a business and industry trustee since 1992. In 1991, he served as the Chairman
of the Major Business Division for the United Way of Southeastern Pennsylvania. Mr. Rowell also has served as chairman of The
American Red Cross Ad Blood Campaign and has previously served on its Major Contributions Donor Campaign. Mr. Rowell's extensive
experience in the insurance industry and his civic service for various health care organizations qualifies him to be a member
of our board of directors.
56
Paul Soltoff
,
58, has served as one of our directors since November 2005. He also has served as Chairman and Chief Executive Officer of Acquirgy,
Inc. since 2009. He served as Chairman and Chief Executive Officer of SendTec, Inc. since its inception in February 2000 through
2009. From 1997 until February 2000, Mr. Soltoff served as Chief Executive Officer of Soltoff Direct Corporation, a specialized
direct marketing consulting company. From September 2004 until October 2005, Mr. Soltoff served as a director of theglobe.com.
Mr. Soltoff's experience as an officer and director in the Internet marketing sector qualifies him to be a member of our
board of directors.
Anthony R. Verdi
,
63, has served as one of our directors since June 2008, as our Chief Financial Officer and Assistant Secretary since November
2005, as our Chief Operating Officer since April 2008, Acting Chief Executive Officer from June 20, 2008 through May 18, 2011,
and Chief Executive Officer since May 18, 2011. From 2001 until November 2005, Mr. Verdi provided consulting services to life,
health and property and casualty insurance company agency and venture capital clients. Mr. Verdi served as Chief Operating Officer
of Provident American Corporation and Chief Financial Officer of HealthAxis, Inc. From January 1990 until December 1998 Mr. Verdi
served as Chief Financial Officer of Provident American Corporation. From July 1986 until January 1990, he was the Vice President
and Controller of InterCounty Hospitalization and Health Plans, a nonprofit group medical insurer. From April 1971 until July
1986, he served in various finance and accounting capacities for the Academy Insurance Group, ultimately serving as the Assistant
Controller. Mr. Verdi's extensive experience in the insurance industry and his financial and accounting background qualifies
him to be a member of our board of directors.
Edmond J. Walters
,
51, has served as one of our directors since April 2008. Mr. Walters is Founder and Chief Executive Officer of eMoney Advisor,
a wealth planning and management solutions provider for financial advisors that Mr. Walters founded in 2000 and is now a wholly-owned
subsidiary of Commerce Bancorp. Prior to forming eMoney Advisor in 2000, Mr. Walters spent more than 20 years in the financial
services industry, advising high net worth clients. From 1983 to 1992 he was associated with Kistler, Tiffany & Company in
Wayne, PA. In 1992, Walters helped found the Wharton Business Group, a financial advising firm, in Malvern, PA. Mr. Walters'
20+ years of experience in the financial sector qualify him to be a member of our board of directors.
Board Independence
The Board has determined
that Messrs. Azeez, Caldwell, Harrison, Rich, Rowell, Soltoff and Walters are "independent" directors as defined by
Rule 4200(a)(15) of the Nasdaq listing standards and as defined by Rule 10A-3(b)(1)(ii) promulgated by the Commission.
57
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table
summarizes the compensation paid to, awarded to or earned during the fiscal years ended December 31, 2011 and 2010 by our Principal
Executive Officer and each of our two other most highly compensated executive officers whose total salary and bonus exceeded $100,000
for services rendered to us in all capacities during 2011. The executive officers listed in the table below are referred to in
this report as our "named executive officers". There were no non-equity incentive plan compensation or non-qualified
deferred compensation earnings for any of the named executive officers for the fiscal years ended December 31, 2011 and December
31, 2010.
Name and Principal Position
Fiscal
    Year
Salary
    ($)
Bonus
    ($)
(6)
Stock
Awards
($)
Option
Awards ($)
(4)
All
    Other
Compensation
($) (5)
Total
    ($)
Anthony R. Verdi (1)
2011
239,583
-
-
180,000
16,490
436,073
Chief Executive Officer,
2010
237,981
-
-
-
16,531
254,512
Chief Financial Officer & Chief
Operating Officer
Robert J. Oakes (2)
2011
300,000
-
-
-
22,132
322,132
President & Chief Executive Officer of InsPro Technologies,
    LLC
2010
274,908
50,000
-
499,491
24,157
848,556
James Rourke (3)
2011
180,000
136,019
-
-
16,156
332,175
Senior Vice President
2010
164,900
15,000
-
24,748
14,279
218,927
(1)
Mr. Verdi was appointed as our Chief Financial Officer on November
                                                            10, 2005, Chief Operating Officer on April 1, 2008, acting Chief Executive
                                                            Officer on June 20, 2008 and Chief Executive Officer on May 18, 2011.
(2)
Mr. Oakes was appointed as President and Chief Executive Officer
                                                            of our subsidiary InsPro Technologies, LLC on October 1, 2007 concurrently
                                                            with the closing of our acquisition of InsPro.
(3)
Mr. Rourke was appointed our Senior Vice President on February
                                                            1, 2010. Mr. Rourke resigned effective December 14, 2012.
(4)
Represents the aggregate grant date
                                                            fair value of the stock option as of the date of grant using the Black-Scholes
                                                            option-pricing model. Fair value is estimated based on an expected
                                                            life of five years, an assumed dividend yield of 0% and the assumptions
                                                            below.
Name
Fiscal
    Year
Fair
    Value
at Date of
Grant ($)
Number
    of
Options
Granted (#)
Option
Exercise
Price ($)
Closing
Stock Price
On the Date
of Grant ($)
Date
    of
Grant
Expected
Volatility
Risk
    Free
Interest
Rate
Expected
Life in
Years
Assumed
Dividend
Yield
Anthony R. Verdi
2011
180,000
150,000
4.00
4.00
9/14/2011
566
%
0.03
%
5
0
%
2010
-
-
-
-
-
-
-
-
-
Robert J. Oakes
2011
-
-
-
-
-
-
-
-
-
2010
166,497
1,500,000
0.111
0.111
8/18/2010
384
%
0.19
%
5
0
%
2010
332,994
150,000
4.00
4.00
8/18/2010
384
%
0.19
%
5
0
%
James Rourke
2011
-
-
-
-
-
-
-
-
-
2010
14,998
250,000
0.060
0.060
3/25/2010
345
%
0.14
%
5
0
%
2010
9,750
150,000
0.065
0.065
7/9/2010
376
%
0.20
%
5
0
%
(5)
All other compensation paid to our
                                                            named executive officers in the fiscal year ended December 31, 2011
                                                            consisted of the following:
58
Name
Payments
    for
Auto and
Equipment ($)
(a)
Company
    Paid
Health, Life
and Disability
Insurance ($)
(b)
Company
Matching of
Employee
401(k)
Contributions
(c)
Total ($)
Anthony R. Verdi
13,200
982
2,308
16,490
Robert J. Oakes
1,200
18,482
2,450
22,132
James Rourke
1,200
14,014
942
16,156
(a)
Payments for auto and equipment
                                                                represent monthly allowances for auto, cell phones and other equipment.
(b)
Company-paid health, life and
                                                                disability insurance represents the cost of company-paid insurance
                                                                premiums covering the named executive officers and, in the case
                                                                of health insurance premiums, their dependents. We pay 100% of
                                                                these insurance premiums for the named executive officers. Health
                                                                insurance premiums vary based on several factors, including the
                                                                age of the named executive officer and the number of their covered
                                                                dependents.
(c)
Company matching of employee 401(k)
                                                                contributions represents 25% of the employee's contribution
                                                                up to 4% of the employee's compensation, which were fully
                                                                vested for the above named executive officers.
(6)
Mr. Oakes received a bonus in 2010
                                                            based on a bonus plan, which was based on InsPro Technologies LLC's
                                                            2009 revenue and profit measures and Mr. Oakes individual personal
                                                            performance as evaluated by the Compensation Committee. Mr. Rourke
                                                            received a one time sign-on bonus in 2010 as part of the Company's
                                                            employment offer to him and in 2011 Mr. Rourke received variable compensation
                                                            based on revenue from new clients.
Outstanding Equity Awards at Fiscal Year-End
The following table
sets forth information for the outstanding equity awards held by our named executive officers for the year ended December 31,
2011. The information below pertains to stock options, which were granted under the 2010 Equity Compensation Plan (which includes
prior grants under our 2005 Incentive Stock Plan, 2006 Omnibus Equity Compensation Plan and 2008 Equity Compensation Plan), restricted
stock grants, which were granted in accordance with the terms of our 2006 Omnibus Equity Compensation Plan, a warrant to purchase
150,000 shares of the Company's Series A Convertible Preferred Stock, which was issued to Mr. Oakes on August 18, 2010,
and a warrant to purchase 150,000 shares of the Company's Series A Convertible Preferred Stock, which was issued to Mr.
Verdi on September 14, 2011.
Option Awards
Name
Number
    of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number
    of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Anthony R. Verdi
150,000
-
-
4.00
9/14/2016
650,000
-
-
0.10
2/4/2014
350,000
-
-
1.00
11/09/2015
Robert J. Oakes
375,000
1,125,000
-
0.11
8/18/2015
150,000
-
-
4.00
8/18/2015
1,000,000
-
0.10
2/4/2014
James Rourke
60,000
90,000
-
0.07
7/9/2015
150,000
100,000
-
0.06
3/25/2015
59
Employment, Severance and Other Agreements
Anthony R. Verdi
Pursuant to an amended and restated employment
agreement Mr. Verdi serves as our Chief Executive Officer, Chief Financial Officer and Chief Operating Officer. Pursuant to his
amended and restated employment agreement, his annual base salary was $225,000 per year through April, 1, 2006, was then increased
to $250,000 through March 31, 2009. Mr. Verdi's employment agreement, if not terminated, will automatically renew for one
year periods. He is entitled to receive such bonus compensation as a majority of our board of directors may determine from time
to time.
In connection with the March 31, 2008
private placement, Mr. Verdi's employment agreement was amended effective March 31, 2008 to revise Mr. Verdi's annual
base salary to $225,000 and to amend the term of his employment agreement to a one year term commencing March 31, 2008.
Mr. Verdi's annual base salary was
increased to $250,000 effective June 1, 2011.
In the event of Mr. Verdi's termination
without cause or for good reason, he or his estate would receive his then current base annual salary, plus unpaid accrued employee
benefits, which is primarily accrued vacation, plus the continuation of his employee benefits for a period of 18 months, less
all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued
employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.
Robert J. Oakes
Pursuant to an amended and restated employment
agreement with InsPro Technologies, LLC, Mr. Oakes serves as InsPro Technologies, LLC's President and Chief Executive Officer.
Pursuant to his employment agreement, his annual base salary was $250,000 per year through September 30, 2011. On April 7, 2011,
Mr. Oakes received an increase in his base compensation pursuant to his employment agreement to $300,000 retroactive to July 1,
2010, upon InsPro Technologies, LLC's achievement of one calendar quarter of positive operating cash flow, which occurred
during the calendar quarter ended March 31, 2011. Mr. Oakes is entitled to bonus compensation equal to 100% of InsPro Technologies,
LLC's net income up to a maximum of $100,000 in 2010 and $100,000 in 2011. Mr. Oakes is entitled to such fringe benefits
as are available to other executives of InsPro Technologies Corporation. Mr. Oakes employment agreement was automatically extended
for an additional one year term on March 25, 2011 and will be annually automatically extended thereafter unless either party provides
written notification to the other party of non-renewal no later than 60 days prior to the termination date of the agreement.
In the event of Mr. Oakes's termination
without cause or for good reason, he or his estate would receive his then current base annual salary, plus unpaid accrued employee
benefits, which is primarily accrued vacation, plus the continuation of his employee benefits for a period of 12 months, less
all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued
employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.
Pursuant to Mr. Oakes employment agreement,
he is subject to a non competition and non-solicitation provision during the term of his employment agreement and for a period
of one year following his termination.
60
James Rourke
Mr. Rourke served as InsPro Technologies,
LLC's Senior Vice President of Sales and Marketing from February 1, 2010 through December 14, 2012. Mr. Rourke was entitled
to variable incentive compensation based on a percentage of new sales and bonus compensation as defined in the InsPro Technologies
Management Incentive Compensation Plan. The InsPro Technologies Management Incentive Compensation Plan defines a maximum compensation
payment, or the Bonus Pool, payable to certain executives including Mr. Rourke but excluding Messrs. Oakes and Verdi, based on
the net income of InsPro Technologies, LLC, adjusted up or down based on the revenue of InsPro Technologies, LLC. The Bonus Pool
amount (if any) is then divided among the certain executives, which included Mr. Rourke. Mr. Rourke was entitled to such fringe
benefits as are available to other executives of InsPro Technologies Corporation.
Compensation of Directors
The following table
sets forth information concerning the compensation of all individuals who served on our board of directors during the fiscal year
ended December 31, 2011. There were no non-equity incentive plan compensation or nonqualified deferred compensation earnings to
any of our directors for the year ended December 31, 2011. Directors who are employees receive no additional or special compensation
for serving as directors. All compensation for Messrs. Oakes and Verdi are included in the Summary Compensation Table. Messrs.
Caldwell and Tecce have assigned all of their board compensation to The Co-Investment Fund II, L.P., or the Fund. Messrs. Caldwell
and Tecce are stockholders, directors and officers of Co-Invest II Capital Partners, Inc., which is the general partner of Co-Invest
Management II, L.P., which is the general partner of the Fund.
Name
Fees
    Earned
or
Paid in Cash
($) (1)
Stock
Awards
($)
Option
Awards
($)
Total
($)
Michael Azeez
1,000
-
-
1,000
Donald Caldwell
6,500
-
-
6,500
John Harrison
5,000
-
-
5,000
Warren V. Musser (2)
1,000
-
-
1,000
Sanford Rich
6,500
-
-
6,500
L.J. Rowell
6,500
-
-
6,500
Paul Soltoff
3,500
-
-
3,500
Frederick Tecce
4,500
-
-
4,500
Edmond Walters
3,000
-
-
3,000
(1)
Represents board and committee meeting fees paid to our directors
                                                            under our Non-Employee Director Compensation Plan.
(2)
Mr. Musser is a former member of the
                                                            board who chose not to be a nominee for director at the company annual
                                                            meeting of stockholders, which was held on August 4, 2011.
61
The following table
sets forth information concerning the aggregate number of options available, which are options issued, outstanding and exercisable,
for non-employee directors as of December 31, 2011.
Aggregate Number of
Options Available as of
December 31, 2011
Michael Azeez
-
Donald Caldwell
-
John Harrison
250,000
Sanford Rich
200,000
L.J. Rowell
200,000
Paul Soltoff
150,000
Frederick C. Tecce
-
Edmond Walters
-
Director Compensation Plan
Directors who are
employees receive no additional or special compensation for serving as directors. Non employee directors receive the following
compensation under the terms of our Non Employee Director Compensation Plan, which was amended on December 13, 2011, to remove
all equity compensation and annual cash retainer components from the plan and to increase the per board meeting cash fee effective
January 2, 2012:
The compensation of
the Company's non-employee directors is as follows:
·
$1,000 meeting
                                                                                                              fee through December
                                                                                                              31, 2011 and $1,500
                                                                                                              meeting fee thereafter
                                                                                                              for each director
                                                                                                              for each meeting
                                                                                                              of the board attended
                                                                                                              in person or via
                                                                                                              conference telephone.
·
$500 meeting
                                                                                                              fee for each committee
                                                                                                              member for each
                                                                                                              meeting of a committee
                                                                                                              of the board, attended
                                                                                                              in person or via
                                                                                                              conference telephone.
The Company reimburses
non-employee directors for reasonable out-of-pocket expenses incurred in connection with their attendance at board and committee
meetings, in accordance with the Company's expense reimbursement policies in effect from time to time.
We also purchase directors'
and officers' liability insurance for the benefit of our directors and officers as a group. No fees are payable to directors
for attendance at specially called meetings of the board.
62
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table shows information known
by us with respect to the beneficial ownership of our common stock, Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock as of December 31, 2012, for each of the following persons:
·
each of our
                                                                                                               directors;
·
our named executive
                                                                                                               officers;
·
all of our
                                                                                                               directors, director
                                                                                                               nominees and executive
                                                                                                               officers as a group;
                                                                                                               and
·
each person
                                                                                                               or group of affiliated
                                                                                                               persons or entities
                                                                                                               known by us to
                                                                                                               beneficially own
                                                                                                               5% or more of our
                                                                                                               common stock, Series
                                                                                                               A Convertible Preferred
                                                                                                               Stock or Series
                                                                                                               B Convertible Preferred
                                                                                                               Stock.
The number of shares beneficially owned,
beneficial ownership and percentage ownership are determined in accordance with the rules of the Securities and Exchange Commission.
Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power
or investment power and includes any shares that an individual or entity has the right to acquire beneficial ownership of within
60 days of December 31, 2012 through the exercise of any warrant, stock option or other right. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, shares underlying options and warrants that are exercisable
within 60 days of December 31, 2012 are considered to be outstanding. To our knowledge, except as indicated in the footnotes to
the following table and subject to community property laws where applicable, the persons named in this table have sole voting
and investment power with respect to all shares shown as beneficially owned by them. The following table is based on 41,543,655
shares of Common
Stock, 1,276,750 shares of Series A Convertible Preferred Stock and 3,297,378 shares of Series B Convertible
Preferred Stock outstanding as of December 31, 2012. Unless otherwise indicated, the address of all individuals and entities listed
below is InsPro Technologies Corporation, 150 N. Radnor-Chester Road, Suite B-101, Radnor, Pennsylvania 19087.
Name of Beneficial
        Owner
Number
        of Shares
Beneficially Owned
Title
        of Class
Percent
        of Shares Beneficially
Directors and Executive Officers:
Michael Azeez
8,499,990 (1)(1a)
Common Stock
20.5%
283,333(1)
Series B Preferred Stock
8.6%
Brian Adamsky
125,894,915  (2)
Common Stock
81.3%
1,250,000 (3)
Series A Preferred Stock
97.9%
1,130,711 (3)
Series B Preferred Stock
34.3%
Donald R. Caldwell
126,008,925  (2)
Common Stock
81.4%
1,250,000 (3)
Series A Preferred Stock
97.9%
1,130,711 (3)
Series B Preferred Stock
34.3%
63
Name of Beneficial
        Owner
Number
        of Shares
Beneficially Owned
Title
        of Class
Percent
        of Shares Beneficially
Robert J. Oakes
5,207,232 (4)
Common Stock
12.0%
151,250 (5)
Series A Preferred Stock
10.7%
John Harrison
453,333  (6)
Common Stock
1.1%
1,250
Series A Preferred Stock
*
James Rourke
370,000  (7)
Common Stock
*
L.J. Rowell
415,600  (8)
Common Stock
1.0%
Paul Soltoff
388,333  (9)
Common Stock
*
1,250
Series A Preferred Stock
*
Sanford Rich
348,333  (10)
Common Stock
*
1,250
Series A Preferred Stock
*
Anthony R. Verdi
4,118,333  (11)
Common Stock
9.7%
151,250(5)
Series A Preferred Stock
10.7%
Edmond Walters
171,633
Common Stock
*
All directors and executive officers as a group
(11 persons)
145,981,713 (1)(1a)(2)(4)(5)
        (6) (7)(8)(9)
(10)(11)(12)
Common Stock
81.3%
1,256,250 (3)
Series A Preferred Stock
98.6%
1,414,044 (3)
Series B Preferred Stock
42.9%
Holders of More than Five Percent of Our Common Stock,
    Series A Convertible Preferred Stock and Series B Convertible Preferred Stock:
The Co-Investment Fund II, L. P
125,894,915 (12)
Common Stock
81.3%
1,250,000
Series A Preferred Stock
97.9%
1,130,711
Series B Preferred Stock
34.3%
Independence Blue Cross
50,000,010 (13)
Common Stock
54.6%
1,666,667
Series B Preferred Stock
50.5%
Azeez Investors, LLC
8,499,990 (1a)
Common Stock
20.5%
283,333
Series B Preferred Stock
8.6%
Scarpa Family Trust, 2005
6,500,010 (14)
Common Stock
13.5%
216,667
Series B Preferred Stock
6.6%
Alvin H. Clemens
3,922,457 (15)
Common Stock
9.2%
______________
* Less than 1%
(1)
Represents securities owned by Azeez Investors, LLC. Mr. Azeez
                                                            is a managing member of Azeez Investors, LLC. Mr. Azeez disclaims
                                                            beneficial ownership of these securities, except to the extent of
                                                            his pecuniary interest therein.
(1a)
Includes 2,833,330 shares underlying warrants, which are exercisable
                                                             within 60 days of December 31, 2012. Includes 5,666,660 shares
                                                             underlying 283,333 shares of Series B Convertible Preferred Stock,
                                                             which are convertible, at the sole option of the holder, into 20
                                                             shares of our common stock per share of Series B Convertible Preferred
                                                             Stock.
64
(2)
Includes 12,646,874 shares, 65,633,821 shares underlying warrants,
                                                            25,000,000 shares underlying 1,250,000 shares of Series A Convertible
                                                            Preferred Stock, which is convertible, at the sole option of the holder,
                                                            into 20 shares of our common stock per share of Series A Convertible
                                                            Preferred Stock, and 22,614,220 shares underlying 1,130,711 shares
                                                            of Series B Convertible Preferred Stock, which is convertible, at
                                                            the sole option of the holder, into 20 shares of our common stock
                                                            per share of Series B Convertible Preferred Stock, which are beneficially
                                                            owned by Co-Investment Fund II, L. P. (the "Fund"), designee
                                                            of Cross Atlantic Capital Partners, Inc. Mr. Caldwell is a managing
                                                            partner of Cross Atlantic Capital Partners, Inc. Mr. Caldwell is also
                                                            a shareholder, director and officer of Co-Invest II Capital Partners,
                                                            Inc., which is the general partner of Co-Invest Management II, L.P.,
                                                            which is the general partner of the Fund. Mr. Caldwell disclaims beneficial
                                                            ownership of these securities, except to the extent of his pecuniary
                                                            interest therein.
(3)
Represents securities owned by the Fund, the designee of Cross
                                                            Atlantic Capital Partners, Inc., of which Brian Adamsky is secretary,
                                                            treasurer and chief financial officer of Cross Atlantic Capital Partners,
                                                            Inc. and of which Donald R. Caldwell is managing partner. Mr. Caldwell
                                                            is also a shareholder, director and officer of Co-Invest II Capital
                                                            Partners, Inc., which is the general partner of Co-Invest Management
                                                            II, L.P., which is the general partner of the Fund. Mr. Tecce and
                                                            Mr. Caldwell disclaim beneficial ownership of these securities, except
                                                            to the extent of their pecuniary interest therein.
(4)
Includes 1,750,000 shares underlying options and 33,333 shares
                                                            underlying warrants, which are exercisable within 60 days of
                                                            December 31, 2012. Includes 3,000,000 shares underlying a warrant
                                                            to purchase 150,000 shares of Series A Convertible Preferred Stock,
                                                            which is exercisable within 60 days of December 31, 2012, which is
                                                            also convertible, at the sole option of the holder, into 20 shares
                                                            of our common stock per share of Series A Convertible Preferred Stock.
                                                            Includes 25,000 shares underlying 1,250 shares of Series A Convertible
                                                            Preferred Stock, which is convertible, at the sole option of the holder,
                                                            into 20 shares of our common stock per share of Series A Convertible
                                                            Preferred Stock. Excludes 750,000 shares underlying options, which
                                                            are not exercisable within 60 days of December 31, 2012.
(5)
Includes 150,000 shares underlying
                                                            warrants, which are exercisable within 60 days of December 31,
                                                            2012.
(6)
Includes 250,000 shares underlying options and 58,333 shares underlying
                                                            warrants, all of which are exercisable within 60 days of December
                                                            31, 2012. Includes 25,000 shares underlying 1,250 shares of Series
                                                            A Convertible Preferred Stock, which is convertible, at the sole option
                                                            of the holder, into 20 shares of our common stock per share of Series
                                                            A Convertible Preferred Stock.
(7)
Includes 370,000 shares underlying
                                                            options, which are exercisable within 60 days of December 31,
                                                            2012.
(8)
Includes 200,000 shares underlying
                                                            options that are exercisable within 60 days of December 31, 2012.
(9)
Includes 150,000 shares underlying options and 33,333 shares underlying
                                                            warrants, all of which are exercisable within 60 days of December
                                                            31, 2012. Includes 25,000 shares underlying 1,250 shares of Series
                                                            A Convertible Preferred Stock, which is convertible, at the sole option
                                                            of the holder, into 20 shares of our common stock per share of Series
                                                            A Convertible Preferred Stock.
(10)
Includes 200,000 shares underlying
                                                             options and 33,333 shares underlying warrants that are exercisable
                                                             within 60 days of December 31, 2012. Includes 25,000 shares
                                                             underlying 1,250 shares of Series A Convertible Preferred Stock,
                                                             which is convertible, at the sole option of the holder, into 20 shares
                                                             of our common stock per share of Series A Convertible Preferred Stock.
(11)
Includes 1,000,000 shares underlying options and 33,333 shares
                                                             underlying warrants, all of which are exercisable within 60 days
                                                             of December 31, 2012. Includes 25,000 shares underlying 1,250 shares
                                                             of Series A Convertible Preferred Stock, which are convertible, at
                                                             the sole option of the holder, into 20 shares of our common stock
                                                             per share of Series A Convertible Preferred Stock. Includes 3,000,000
                                                             shares underlying a warrant to purchase 150,000 shares of Series
                                                             A Convertible Preferred Stock, which is exercisable within 60 days
                                                             of December 31, 2012, which is also convertible, at the sole option
                                                             of the holder, into 20 shares of our common stock per share of Series
                                                             A Convertible Preferred Stock.
(12)
Includes 62,300,491 shares underlying warrants that are exercisable
                                                             within 60 days of December 31, 2012. Includes 25,000,000 shares underlying
                                                             1,250,000 shares of Series A Convertible Preferred Stock, which are
                                                             convertible, at the sole option of the holder, into 20 shares of
                                                             our common stock per share of Series A Convertible Preferred Stock.
                                                             Includes 22,614,220 shares underlying 1,130,711 shares of Series
                                                             B Convertible Preferred Stock, which are convertible, at the sole
                                                             option of the holder, into 20 shares of our common stock per share
                                                             of Series B Convertible Preferred Stock.
(13)
Includes 16,666,670 shares underlying warrants, which are exercisable
                                                             within 60 days of December 31, 2012. Includes 33,333,340 shares
                                                             underlying 1,666,667 shares of Series B Convertible Preferred Stock,
                                                             which are convertible, at the sole option of the holder, into 20
                                                             shares of our common stock per share of Series B Convertible Preferred
                                                             Stock.
(14)
Includes 1,333,340 shares underlying warrants, which are exercisable
                                                             within 60 days of December 31, 2012. Includes 4,330,340 shares
                                                             underlying 216,667 shares of Series B Convertible Preferred Stock,
                                                             which are convertible, at the sole option of the holder, into 20
                                                             shares of our common stock per share of Series B Convertible Preferred
                                                             Stock.
(15)
Includes 1,000,000 shares held by The Clemens-Beaver Creek Limited
                                                             Partnership, of which Alvin H. Clemens is the general partner. Also
                                                             includes 100,000 shares held by Mr. Clemens's minor children.
                                                             Also includes 993,377 shares underlying warrants, all of which are
                                                             exercisable within 60 days of December 31, 2012.
65
TRANSACTIONS WITH RELATED PERSONS,
PROMOTERS AND CERTAIN CONTROL PERSONS
From the beginning of our last fiscal
year until the date of this proxy statement, there has been no transaction, nor is there any transaction currently proposed, to
which we were, are, or would be a participant, in which the amount involved exceeded or would exceed the lesser of $120,000 or
one percent of the average of our total assets at year end for the last two completed fiscal years and in which any of our directors
or executive officers, any holder of more than 5% of our common stock or any member of the immediate family of any of these persons
or entities had or will have a direct or indirect material interest, other than the transactions described below.
We believe that we have executed all of
the transactions described below on terms no less favorable to us than we could have obtained from unaffiliated third parties.
It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and
their affiliates are approved by a majority of our board of directors, including a majority of the independent and disinterested
members of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated
third parties.
·
On November
                                                                                                               20, 2012, we completed
                                                                                                               a private placement
                                                                                                               with certain accredited
                                                                                                               investors who hold
                                                                                                               more than 5% of
                                                                                                               our common stock,
                                                                                                               including The Co-Investment
                                                                                                               Fund II, L.P.,
                                                                                                               The Scarpa Family
                                                                                                               Trust, 2005 and
                                                                                                               Azeez Investors,
                                                                                                               LLC for an aggregate
                                                                                                               of 499,999 shares
                                                                                                               of our Series B
                                                                                                               Convertible Preferred
                                                                                                               Stock and warrants
                                                                                                               to purchase 4,999,990
                                                                                                               shares of our common
                                                                                                               stock. We agreed
                                                                                                               to sell to the
                                                                                                               investors 499,999
                                                                                                               investment units
                                                                                                               at a per unit price
                                                                                                               of $3.00, for an
                                                                                                               approximate aggregate
                                                                                                               total investment
                                                                                                               of $1,500,000,
                                                                                                               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, subject
                                                                                                               to adjustment.
                                                                                                               The units issued
                                                                                                               in the private
                                                                                                               placement are substantially
                                                                                                               equivalent to the
                                                                                                               Units being offered
                                                                                                               pursuant to this
                                                                                                               rights offering.
66
PLAN OF DISTRIBUTION
On or about ______,
2013, we will distribute the rights, rights certificates and copies of this prospectus to individuals who owned shares of capital
stock on _______, 2013. If you wish to exercise your rights and purchase Units, you should complete the rights certificate and
return it with payment for the shares, to us at the following address:
InsPro Technologies Corporation
150 N. Radnor-Chester Road
Suite B-101
Radnor, Pennsylvania 19087
Attn: Francis L. Gillan III
See further the section
of this prospectus entitled "The Rights Offering." If you have any questions, you should contact Francis L. Gillan
III, at (484) 654-2200 or by electronic mail at
rightsoffering@inspro.com
.
We do not know of
any existing agreements between any stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of
the Series B Convertible Preferred Stock or warrants underlying the rights.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a
discussion of the material U. S. federal income tax consequences to U.S. holders, as defined below, of the receipt, ownership
and exercise of the subscription rights distributed in the subscription rights offering, the ownership and disposition of Series
B Convertible Preferred Stock and warrants to purchase our common stock received upon exercise of the subscription rights, and
the ownership and disposition of common stock received upon the exercise of warrants to purchase our common stock or the conversion
of Series B Convertible Preferred Stock. The legal conclusions with respect to matters of U.S. federal income tax law identified
in this section, "Material U.S. Federal Income Tax Considerations," are the opinion of our counsel, Morgan, Lewis
& Bockius LLP. In this section, all references to "we" and "our" refer to the Company and not to Morgan,
Lewis & Bockius LLP.
This discussion is
based on the Code, Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as
in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion is not
binding on the Internal Revenue Service or the IRS, or the courts. Accordingly, no assurance can be given that the tax consequences
described herein will not be challenged by the IRS or that such a challenge would not be sustained by a court. No ruling has been
sought from the IRS as to the U.S. federal income tax consequences set forth in this discussion.
This discussion does
not address all aspects of U.S. federal income taxation that may be applicable to holders in light of their particular circumstances
or to holders subject to special treatment under the U.S. federal income tax laws, including, but not limited to, financial institutions,
brokers and dealers in securities or currencies, insurance companies, regulated investment companies, real estate investment trusts,
tax-exempt organizations, persons who hold their shares as part of a straddle, hedge, conversion or other risk-reduction transaction,
persons liable for the alternative minimum tax, persons who have received their common stock pursuant to which the subscription
rights in this rights offering have been granted through the exercise of employee stock options or otherwise as compensation for
services, partnerships or other entities treated as partnerships for U.S. federal income tax purposes, U.S. expatriates, and persons
whose functional currency is not the U.S. dollar and foreign taxpayers. This discussion does not describe any tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction, or any U.S. federal tax considerations other than income
taxation (such as alternative minimum, estate, gift or unearned income Medicare Contribution taxation). This discussion is limited
to U.S. holders which hold our shares as capital assets and does not address U.S. holders which beneficially hold our shares through
either a "foreign financial institution" (as such term is defined in Section 1471(d)(4) of the Code) or certain other
non-U.S. entities specified in Section 1472 of the Code. For purposes of this discussion, a "U.S. holder" is a holder
that is, for U.S. federal income tax purposes:
·
a citizen or
                                                                                                               resident of the
                                                                                                               United States;
·
a corporation,
                                                                                                               or other entity
                                                                                                               taxable as a corporation
                                                                                                               for U.S. federal
                                                                                                               income tax purposes,
                                                                                                               created or organized
                                                                                                               in or under the
                                                                                                               laws of the United
                                                                                                               States or any political
                                                                                                               subdivision thereof;
·
an estate the
                                                                                                               income of which
                                                                                                               is subject to U.S.
                                                                                                               federal income
                                                                                                               taxation regardless
                                                                                                               of its source;
                                                                                                               or
·
a trust if
                                                                                                               (1) a U.S. court
                                                                                                               is able to exercise
                                                                                                               primary supervision
                                                                                                               over the administration
                                                                                                               of the trust and
                                                                                                               one or more "United
                                                                                                               States persons"
                                                                                                               (within the meaning
                                                                                                               of the Code) have
                                                                                                               the authority to
                                                                                                               control all substantial
                                                                                                               decisions of the
                                                                                                               trust or (2) has
                                                                                                               a valid election
                                                                                                               in effect under
                                                                                                               applicable Treasury
                                                                                                               Department regulations
                                                                                                               to be treated as
                                                                                                               a United States
                                                                                                               person.
67
If a partnership (including
any entity treated as a partnership for U.S. federal income tax purposes) receives the subscription rights or holds shares of
Series B Convertible Preferred Stock or warrants received upon exercise of the subscription rights or the oversubscription privilege,
the tax treatment of a partner in a partnership generally will depend upon the status of the partner and the activities of the
partnership. Such a partner or partnership should consult its own tax advisor as to the U.S. federal income tax consequences of
the receipt and ownership of the subscription rights or the ownership of shares of Series B Convertible Preferred Stock and warrants
received upon exercise of the subscription rights or, if applicable, upon exercise of the oversubscription privilege.
YOU SHOULD CONSULT
YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF YOUR RECEIPT, OWNERSHIP, AND EXERCISE OF THE SUBSCRIPTION RIGHTS,
THE OWNERSHIP AND DISPOSITION OF SERIES B CONVERTIBLE PREFERRED STOCK AND WARRANTS TO PURCHASE OUR COMMON STOCK, AND THE OWNERSHIP
AND DISPOSITION OF COMMON STOCK RECEIVED UPON THE EXERCISE OF WARRANTS TO PURCHASE OUR COMMON STOCK OR THE CONVERSION OF SERIES
B CONVERTIBLE PREFERRED STOCK, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN
TAX LAWS.
Receipt of the
Subscription Rights
Each subscription
right entitles eligible stockholder the right to purchase for $999.00 one Unit, consisting of 333 shares of our Series B Convertible
Preferred Stock and a five-year warrant to purchase 3,330 additional shares of our common stock at an exercise price of $0.15
per share. Generally, the distribution of stock by a corporation to its stockholders with respect their stock is not taxable to
such stockholders pursuant to Section 305(a) of the Code. For such purpose, a distribution of rights to acquire stock of the distributing
corporation constitutes a distribution of stock. However, if a distribution of stock or rights to acquire stock is within one
of several exceptions to the general rule of Section 305(a) set forth in Section 305(b) of the Code, the distribution may be taxable
to the stockholders of the distributing corporation as described below.
Many of the exceptions
to the general rule of Section 305(a) set forth in Section 305(b) involve preferred stock, such as the distribution of convertible
preferred stock in certain circumstances pursuant to Section 305(b)(5). Treasury regulations define preferred stock not for its
preferred rights and privileges, but its inability to participate in corporate growth to any significant extent. It is the opinion
of Morgan, Lewis & Bockius LLP that the Series B Convertible Preferred Stock should not be preferred stock for tax purposes
based on certain features of the preferred stock, including its right to participate in dividends on an as converted basis and
the right to a distribution in a liquidation or other capital event on an as converted basis if such distribution would be greater
than the liquidation preference right associated with the Series B Convertible Preferred Stock, as well as based on certain representations
relied upon in rendering the opinion, and, accordingly, that none of the Section 305(b) exceptions that apply to preferred stock
for tax purposes should apply to the rights offering and that the rights offering should be evaluated for Section 305 purposes
as if we have only one outstanding class of stock. This opinion is not binding on the IRS or any court and there can be no assurance
that the IRS or a court will agree with this opinion. The remainder of this discussion assumes that the Series B Convertible Preferred
Stock is not treated as preferred stock for tax purposes.
68
Section 305(b)(2)
is an exception to the general rule of Section 305(a) that applies to a "disproportionate distribution." Pursuant
to Section 305(b)(2), a distribution (or a series of distributions of which such a distribution is one) of stock rights constitutes
a "disproportionate distribution," and is therefore taxable, if the distribution results in (a) the receipt of property
by some stockholders, and (b) an increase in the proportionate interest of other stockholders in the assets or earnings and profits
of the distributing corporation. For this purpose, the term "property" means money, securities and any other property,
except that such term does not include stock in the corporation making the distribution or rights to acquire such stock. A "series
of distributions" encompasses all distributions of stock made or deemed made by a corporation which have the result of receipt
of cash or property by some stockholders and an increase in the proportionate interests of other stockholders. It is not necessary
for a distribution of stock to be considered as one of a series of distributions that such distribution be pursuant to a plan
to distribute cash and property to some stockholders and to increase the proportionate interests of the other stockholders, rather
it is sufficient if there is a distribution (or a deemed distribution) having such effect. In addition, there is no requirement
that both elements of Section 305(b)(2) of the Code occur in the form of a distribution or series of distributions as long as
the result is that some stockholders receive cash and property and other stockholders' proportionate interests increase.
Under the applicable Treasury regulations, where the receipt of cash or property occurs more than 36 months following a distribution
or series of distributions of stock, or where a distribution is made more than 36 months following the receipt of cash or property,
such distribution or distributions will be presumed not to result in the receipt of cash or property by some stockholders and
an increase in the proportionate interest of other stockholders, unless the receipt of cash or property by some stockholders and
the distribution or series of distributions are made pursuant to a plan.
It is the opinion
of Morgan, Lewis & Bockius LLP that the distribution of rights in the rights offering should not constitute an increase in
the proportionate interest of some stockholders in the assets or earnings and profits of the Company for the purpose of Section
305(b)(2) based on the fact that all of our stockholders will receive rights in the rights offering based upon their respective
ownership our common stock, as well as based on certain representations relied upon in rendering the opinion, and, accordingly,
that the rights offering should not constitute part of a "disproportionate distribution," pursuant to Section 305(b)(2)
of the Code. This opinion is not binding on the IRS or any court and there can be no assurance that the IRS or a court will agree
with this opinion. The remainder of this discussion assumes that Section 305(b)(2) does not apply to the subscription rights offering.
Subject to the foregoing,
it is the opinion of Morgan, Lewis & Bockius LLP that you should not recognize taxable income for U.S. federal income tax
purposes in connection with the receipt of the subscription right in the rights offering and the remainder of this discussion
so assumes. However, in the event the IRS successfully asserts or a court determines that your receipt of subscription rights
is currently taxable pursuant to Section 305(b)(2) of the Code, the discussion under the heading "Alternative Treatment
of Subscription Rights" describes the tax consequences that will result from such a determination.
Tax Basis and Holding Period of the Subscription Rights
Your tax basis of
the subscription rights for U.S. federal income tax purposes will depend on the fair market value of the subscription rights you
receive and the fair market value of your existing shares of stock on the date you receive the subscription rights. The tax basis
of the subscription rights received by you in the subscription rights offering will be zero unless either (1) the fair market
value of the subscription rights on the date such subscription rights are distributed is equal to at least 15% of the fair market
value on such date of the shares with respect to which they are received or (2) you elect to allocate part of the tax basis of
such shares to the subscription rights. If either (1) or (2) is true, then, if you exercise the subscription rights, your tax
basis in your shares will be allocated between the subscription rights and the shares with respect to which the subscription rights
were received in proportion to their respective fair market values on the date the subscription rights are distributed.
In addition, any tax
basis allocated to the subscription rights must be apportioned between the right to receive shares of the Series B Convertible
Preferred Stock, or Preferred Stock Rights, and the right to receive warrants, or Warrant Rights, in proportion to their respective
fair market values on the date you receive the subscription rights.
69
We have not obtained
an independent appraisal of the valuation of the subscription rights and, therefore, you should consult with your tax advisor
to determine the proper allocation of basis between the subscription rights and the shares with respect to which the subscription
rights are received.
Your holding period
for the subscription rights will include your holding period for the shares with respect to which the subscription rights were
received.
Expiration of the Subscription Rights
If you allow subscription
rights received in the subscription rights offering to expire, you will not recognize any gain or loss. If you have tax basis
in the subscription rights, the tax basis of the shares owned by you with respect to which such subscription rights were distributed
will be restored to the tax basis of such shares immediately prior to the receipt of the subscription rights in the subscription
rights offering.
Alternative Treatment
of Subscription Rights
Receipt
.
If the IRS were to successfully assert that the distribution of the subscription rights in the rights offering resulted in a "disproportionate"
distribution or is otherwise taxable pursuant to Section 305(b)(2), each holder would be considered to have received a distribution
with respect to such holder's stock in an amount equal to the fair market value of the subscription rights received by such
holder on the date of the distribution. This distribution generally would be taxed as dividend income to the extent of your ratable
share of our current and accumulated earnings and profits. The amount of any distribution in excess of our earnings and profits
will be applied to reduce, but not below zero, your tax basis in your stock, and any excess generally will be taxable to you as
capital gain (long-term, if your holding period with respect to your common stock is more than one year as of the date of distribution,
and otherwise short-term). Your tax basis in the subscription rights received pursuant to the rights offering would be equal to
their fair market value on the date of distribution and the holding period for the rights would begin upon receipt.
Expiration
.
Assuming the receipt of subscription rights in the rights offering is a taxable event, if your subscription rights lapse without
being exercised, you will recognize a capital loss equal to your tax basis in such expired subscription rights. The deductibility
of capital losses is subject to limitations.
Exercise of the
Subscription Rights; Tax Basis and Holding Period of the Shares
Generally, you will
not recognize any gain or loss upon the exercise of the subscription rights received in the subscription rights offering by purchasing
Unit(s) for $999.00 per Unit. The tax basis of the Series B Convertible Preferred Stock acquired will be the sum of (i) that portion
of the subscription price allocable to the Series B Convertible Preferred Stock, plus (ii) the portion, if any, of the tax basis
of the subscription rights allocable to the Preferred Stock Rights. The tax basis of the warrants acquired will be the sum of
(i) that portion of the subscription price allocable to the warrants, plus (ii) the portion, if any, of the tax basis of the subscription
rights allocable to the Warrant Rights.
The holding period
for the Series B Convertible Preferred Stock and warrants acquired through exercise of the subscription rights will begin on the
date the subscription rights are exercised.
Taxation of Warrants
You generally will not recognize gain or
loss upon exercise of a warrant to acquire common stock. Your tax basis of the common stock received upon exercise of a warrant
for cash generally will equal the tax basis of the warrant, increased by the amount paid upon exercise of the warrant.
Your holding period of common stock received
upon exercise of a warrant will begin on the date the warrant is exercised.
70
In the event a warrant lapses unexercised,
you will recognize a capital loss in an amount equal to the tax basis of the warrant. Such capital loss will be long-term if your
holding period of such warrant was more than one year at the time of lapse. The deductibility of capital losses is subject to
limitations.
Taxation of Series B Convertible Preferred
Stock
Distributions
.
Generally, any distribution with respect to the Series B Convertible Preferred Stock that is paid out of our current or accumulated
earnings and profits, as determined for U.S. federal income tax purposes, will constitute a dividend and will be includible in
gross income by you when paid. Distributions with respect to the Series B Convertible Preferred Stock in excess of our current
or accumulated earnings and profits would be treated first as a non-taxable return of capital to the extent of your basis in the
Series B Convertible Preferred Stock (thus reducing such tax basis dollar-for-dollar), and thereafter as capital gain, which will
be long-term capital gain if the your holding period for such stock at the time of distribution exceeds one year.
Sale, Exchange
or Other Disposition
. Upon a sale, exchange or other disposition of the Series B Convertible Preferred Stock (not including
a conversion of the Series B Convertible Preferred Stock into our common stock), you generally will recognize capital gain or
loss equal to the difference between the amount realized (not including any amount attributable to declared and unpaid dividends,
which generally will be taxable as described above, under "— Taxation of Series B Convertible Preferred Stock —
Distributions," to holders that have not previously included such dividends in income) and your tax basis in the Series
B Convertible Preferred Stock so disposed. Such capital gain or loss generally will be long-term capital gain or loss if your
holding period for such stock at the time of disposition exceeds one year. The deductibility of capital losses is subject to limitations.
Adjustment of
the Conversion Rate
. The conversion rate of the Series B Convertible Preferred Stock is subject to adjustment. Treasury
regulations promulgated under Section 305 of the Code could, under certain circumstances, treat a U.S. holder of the Series B
Convertible Preferred Stock as having received a constructive distribution includable in such U.S. holder's income in the
manner described above under "— Taxation of Series B Convertible Preferred Stock — Distributions" if and
to the extent that certain adjustments in the conversion rate (or failures to adjust) increase the proportionate interest of a
U.S. holder in our earnings and profits or assets. Thus, under certain circumstances, U.S. holders may recognize income in the
event of a constructive distribution even though they may not receive any cash or property. Adjustments to the conversion rate
made pursuant to a bona fide reasonable adjustment formula which has the effect of preventing dilution in the interest of the
U.S. holders of the Series B Convertible Preferred Stock, however, will generally not be considered to result in a constructive
dividend distribution.
Conversion of
the Series B Convertible Preferred Stock into Our Common Stock
. You generally will not recognize any gain or loss in respect
of the receipt of our common stock upon the conversion of the Series B Convertible Preferred Stock. The tax basis of our common
stock that you receive on conversion will equal the tax basis of the Series B Convertible Preferred Stock converted (reduced by
the portion of tax basis allocated to any fractional common share exchanged for cash, as described below), and the holding period
of such common stock received on conversion will generally include the period during which you held the Series B Convertible Preferred
Stock prior to conversion.
Cash received in lieu
of a fractional common share will generally be treated as a payment in a taxable exchange for such fractional common share, and
capital gain or loss will be recognized on the receipt of cash in an amount equal to the difference between the amount of cash
received and the amount of tax basis allocable to the fractional common share. Any cash received attributable to any declared
and unpaid dividends on the Series B Convertible Preferred Stock will be treated as described above under "— Taxation
of Series B Convertible Preferred Stock — Distributions."
Taxation of Common Stock
Distributions
.
Distributions received with respect to our common stock will be treated as described above under "— Taxation of
Series B Convertible Preferred Stock — Distributions."
71
Sale, Exchange or Other Disposition
.
Upon a sale, exchange or other disposition of our common stock, you generally will recognize capital gain or loss in the manner
described above under "— Taxation of Series B Convertible Preferred Stock — Sale, Exchange or Other Disposition."
Additional Medicare Tax on Net Investment Income
For tax years beginning after December
31, 2012, an additional 3.8% tax will be imposed on the "net investment income" of certain U.S. citizens and resident
aliens, and on the undistributed "net investment income" of certain estates and trusts. Among other items, "net
investment income" generally includes gross income from dividends and net gain from the disposition of property, such as
our Series A Convertible Preferred Stock and common stock, less certain deductions. You should consult your tax advisor with respect
to this additional tax.
Information Reporting and Backup Withholding
In general, payments made to you of proceeds
from the sale or other disposition of warrants, Series B Convertible Preferred Stock, or our common stock may be subject to information
reporting to the IRS and possible U.S. federal backup withholding at the then applicable backup withholding rate. Backup withholding
will not apply if you furnish a correct taxpayer identification number (certified on the IRS Form W-9 or valid substitute Form
W-9) or otherwise establish that you are exempt from backup withholding. Backup withholding is not an additional tax. Amounts
withheld as backup withholding may be credited against your U.S. federal income tax liability. You may obtain a refund of any
excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and
furnishing any required information.
You should consult
your own tax advisor regarding your qualification for an exemption from backup withholding and the procedures for obtaining such
an exemption, if applicable.
72
EXPERTS
Our consolidated financial
statements as of and for the years ended December 31, 2011 and 2010 included in this prospectus and in the registration statement
of which this prospectus is a part have been audited by Sherb & Co., LLP, independent registered public accountants, to the
extent and for the periods set forth in their report and are incorporated in this prospectus in reliance upon the report given
upon the authority of Sherb & Co., LLP as experts in auditing and accounting.
TRANSFER AGENT AND REGISTRAR
The transfer agent
and registrar for our common stock is Pacific Stock Transfer Company, whose address is 4045 South Spencer Street, Suite 403, Las
Vegas, NV 89119, and whose phone number is (702) 361-3033.
LEGAL MATTERS
The validity of the
securities being offered by this prospectus have been passed upon for us by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with
the Commission a registration statement on Form S-1, including exhibits, schedules and amendments filed with this registration
statement, under the Securities Act with respect to offers and resales of shares of our common stock by the selling stockholders
identified in this prospectus. This prospectus, which constitutes part of the registration statement, does not include all of
the information contained in the registration statement and its exhibits and schedules. You should refer to the registration statement
and its exhibits and schedules for additional information. Whenever we make reference in this prospectus to any of our contracts,
agreements or other documents, the references are not necessarily complete and you should refer to the exhibits filed with the
registration statement for copies of the actual contract, agreement or other document. Statements contained in this prospectus
as to the contents of any contract or other document referred to in this prospectus are not necessarily complete and, where that
contract is an exhibit to the registration statement, each statement is qualified in all respects by reference to the exhibit
to which the reference relates.
You can read the registration
statement and our other filings with the Commission, over the Internet at the Commission's website at http://www.sec.gov.
You also may read and copy any document that we file with the Commission at its public reference room at Headquarters Office,
100 F Street, N.E., Washington, D.C. 20549.
DISCLOSURE OF COMMISSION POSITION
ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
73
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page Number
Management's Report on Internal Control Over Financial
    Reporting
F-2
Report of Independent Registered Public Accounting Firm
F-3
Consolidated Balance Sheets at December 31, 2011 and December 31, 2010
F-4
Consolidated Statements of Operations for the Years Ended December 31, 2011
    and December 31, 2010
F-5
Consolidated Statements of Changes in Shareholders' Equity for the
    Years Ended December 31, 2011 and December 31, 2010
F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011
    and December 31, 2010
F-7
Notes to Consolidated Financial Statements
F-8 – F-42
Consolidated Balance Sheets as of September 30, 2012 (UNAUDITED) and December
    31, 2011
F-43
Consolidated Statements of Operations (UNAUDITED) for the three and nine
    months ended September 30, 2012 and 2011
F-44
Consolidated Statements of Cash Flows (UNAUDITED) for the nine months ended
    September 30, 2012 and 2011
F-45
Notes to Consolidated UNAUDITED Financial Statements
F-46 – F-60
F-
1
Management Report on Internal Control
over Financial Reporting
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.
F-
2
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors
InsPro Technologies Corporation
Radnor, Pennsylvania
We have audited the
accompanying consolidated balance sheets of InsPro Technologies Corporation and Subsidiaries as of December 31, 2011 and December
31, 2010, the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years ended
December 31, 2011 and December 31, 2010. These consolidated financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the
consolidated financial statements referred to above present fairly, in all material respects, the financial position of InsPro
Technologies Corporation and Subsidiaries as of December 31, 2011 and December 31, 2010, and the results of their operations and
their cash flows for the years ended December 31, 2011 and December 31, 2010, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Sherb & Co., LLP
Certified Public Accountants
Boca Raton, Florida
March 16, 2012
F-
3
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2011
December 31, 2010
ASSETS
CURRENT ASSETS:
Cash
$
3,702,053
$
4,429,026
Accounts receivable, net
1,506,234
709,503
Prepaid expenses
116,649
158,245
Other current assets
2,905
8,211
Assets of discontinued operations
104,002
63,301
Total current assets
5,431,843
5,368,286
Restricted cash
-
1,152,573
Property and equipment, net
496,692
613,618
Intangibles, net
260,050
606,785
Other assets
80,608
92,558
Total assets
$
6,269,193
$
7,833,820
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable
$
8,586
$
17,311
Accounts payable
644,563
918,972
Accrued expenses
521,383
346,808
Current portion of capital lease obligations
109,872
158,138
Due to related parties
-
8,370
Deferred revenue
622,500
377,500
Total current liabilities
1,906,904
1,827,099
LONG TERM LIABILITIES:
Warrant liability
1,674,226
4,030,340
Capital lease obligations
113,943
165,612
Total long term liabilities
1,788,169
4,195,952
SHAREHOLDERS' EQUITY:
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;
    5,000,000 shares authorized, 2,797,379 shares issued and outstanding (liquidation value $8,392,137)
5,427,604
5,427,604
Common stock ($.001 par value; 300,000,000
    shares authorized, 41,543,655 shares issued and outstanding)
41,543
41,543
Additional paid-in capital
37,038,318
36,764,016
Accumulated deficit
(42,797,449
)
(43,286,498
)
Total shareholders' equity
2,574,120
1,810,769
Total liabilities and shareholders'
    equity
$
6,269,193
$
7,833,820
See accompanying notes to audited
consolidated financial statements.
F-
4
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31,
2011
2010
Revenues
$
9,057,816
$
6,077,358
Cost of revenues
6,948,872
6,563,842
Gross profit (loss)
2,108,944
(486,484
)
Selling, general and administrative expenses:
Salaries, employee benefits and related taxes
2,615,602
2,765,161
Advertising and other marketing
125,130
160,903
Depreciation and amortization
687,042
876,644
Rent, utilities, telephone and communications
368,336
403,955
Professional fees
439,006
653,123
Other general and administrative
544,366
528,022
4,779,482
5,387,808
Loss from operations
(2,670,538
)
(5,874,292
)
Gain from discontinued operations
803,989
2,463,675
Other income (expense):
Gain on the change of the fair value of warrant liability
2,356,114
1,136,588
Interest income
23,044
21,000
Interest expense
(23,560
)
(247,417
)
Total other income (expense)
2,355,598
910,171
Net income (loss)
$
489,049
$
(2,500,446
)
Net income (loss) per common share - basic and fully diluted
Income (loss) from operations
$
(0.01
)
$
(0.12
)
Gain from discontinued operations
0.02
0.06
Net income (loss) per common share
$
0.01
$
(0.06
)
Weighted average
    common shares outstanding - basic and fully diluted
41,543,655
41,543,655
See accompanying notes to audited consolidated
financial statements.
F-
5
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARs ENDED DECEMBER 31, 2011 and 2010
Series A Preferred Stock,
Series B Preferred Stock,
Common Stock, $.001
Total
$.001 Par Value
$.001 Par Value
Par Value
Additional
Shareholders'
Number of
Shares
Amount
Number of
Shares
Amount
Number of
Shares
Amount
Paid-in
Capital
Accumulated
Deficit
Equity
(Deficit)
Balance - December 31, 2009
1,000,000
$
1,983,984
41,543,655
$
41,543
$
36,380,493
$
(40,786,052
)
$
(2,380,032
)
Preferred stock and warrants issued in rights offering
276,750
880,120
880,120
Preferred stock and warrants issued in private placement
2,000,001
3,609,525
3,609,525
Warrant issued as compensation
332,994
332,994
Preferred stock and warrants issued in connection with conversion of secured
    note from related party
797,378
1,818,079
1,818,079
Amortization of deferred compensation
50,529
50,529
Net loss for the period
(2,500,446
)
(2,500,446
)
Balance - December 31, 2010
1,276,750
2,864,104
2,797,379
5,427,604
41,543,655
41,543
36,764,016
(43,286,498
)
1,810,769
Amortization of deferred compensation
94,302
94,302
Warrant issued as compensation
180,000
180,000
Net income for the period
489,049
489,049
Balance - December 31, 2011
1,276,750
$
2,864,104
2,797,379
$
5,427,604
41,543,655
$
41,543
$
37,038,318
$
(42,797,449
)
$
2,574,120
See accompanying notes to audited consolidated
financial statements.
F-
6
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
2011
2010
Cash Flows From Operating Activities:
Net income (loss)
$
489,049
$
(2,500,446
)
Adjustments to reconcile net loss to net cash used in operating
    activities:
Depreciation and amortization
687,042
876,644
Stock-based compensation and consulting
274,302
383,523
(Gain) on change of fair value of warrant liability
(2,356,114
)
(1,136,588
)
Loss on the disposal of equipment of discontinued operations
-
6,530
Changes in assets and liabilities:
Accounts receivable
(796,731
)
305,566
Prepaid expenses
41,596
(74,411
)
Other current assets
5,306
(1,802
)
Other assets
11,950
28,412
Accounts payable
(274,409
)
(330,911
)
Accrued interest on related secured note from related
    party
-
199,876
Accrued expenses
174,576
(469,925
)
Due to related parties
-
8,370
Deferred revenue
245,000
145,000
Assets of discontinued operations
(40,701
)
(2,214,461
)
Net cash used in operating activities
(1,539,134
)
(4,774,623
)
Cash Flows From Investing Activities:
Purchase of property and equipment
(223,382
)
(239,607
)
Net cash used in investing activities
(223,382
)
(239,607
)
Cash Flows From Financing Activities:
Gross proceeds from note payable
37,540
119,875
Payments on note payable
(46,265
)
(110,168
)
Gross proceeds from secured note from related party
-
1,000,000
Payments on secured note from related party
-
(2
)
Fees paid in connection with secured note from related party
(8,370
)
(18,389
)
Gross proceeds from capital leases
58,791
137,310
Payments on capital leases
(158,726
)
(151,099
)
Restricted cash in connection with letters of credit
1,152,573
1,471
Gross proceeds from sales of preferred stock and warrants
-
7,107,001
Fees paid in connection with offering
-
(46,396
)
Net cash provided by financing activities
1,035,543
8,039,603
Net increase (decrease) in cash
(726,973
)
3,025,373
Cash - beginning of the period
4,429,026
1,403,653
Cash - end of the period
$
3,702,053
$
4,429,026
Supplemental
    Disclosures of Cash Flow Information Cash payments for interest
$
23,560
$
47,541
Non cash financing activities:
Accrued Interest on related party
    note
$
-
$
139,398
Repayment of secured note upon conversion
    into equity
$
-
$
(2,392,134
)
Preferred stock and warrants issued
    upon the conversion of secured note
$
-
$
2,367,874
See accompanying notes to audited consolidated
financial statements.
F-
7
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
InsPro Technologies Corporation (the "Company",
"ITCC", "we", "us" or "our") was incorporated under the laws of the state of Nevada
on October 21, 2004 as Darwin Resources Corp., ("Darwin-NV"). On November 22, 2005, Darwin-NV merged with and into
its newly-formed wholly-owned subsidiary, Darwin Resources Corp., a Delaware corporation ("Darwin-DE"), solely for
the purpose of changing the Company's state of incorporation from Nevada to Delaware. On November 23, 2005, HBDC II, Inc.,
a newly-formed wholly-owned subsidiary of Darwin-DE, was merged with and into Health Benefits Direct Corporation, a privately-held
Delaware corporation ("HBDC"), and the name of the resulting entity was changed from Health Benefits Direct Corporation
to HBDC II, Inc. Following the merger, Darwin-DE changed its name to Health Benefits Direct Corporation. On November 29, 2010,
Health Benefits Direct Corporation changed its name to InsPro Technologies Corporation.
HBDC was formed in January 2004 for the
purpose of acquiring, owning and operating businesses engaged in direct marketing and distribution of health and life insurance
products, primarily utilizing the Internet. On September 9, 2005, HBDC acquired three affiliated Internet health insurance marketing
companies, namely Platinum Partners, LLC, a Florida limited liability company, Health Benefits Direct II, LLC, a Florida limited
liability company, and Health Benefits Direct III, LLC, a Florida limited liability company. HBDC issued 7,500,000 shares of its
common stock and a warrant to purchase 50,000 shares of its common stock, in the aggregate, in exchange for 100% of the limited
liability company interests of these companies.
The acquisition of HBDC by the Company
was accounted for as a reverse merger because, on a post-merger basis, the former HBDC shareholders held a majority of the outstanding
common stock of the Company on a voting and fully diluted basis. As a result, HBDC was deemed to be the acquirer for accounting
purposes. Accordingly, the consolidated financial statements presented for the period ended December 31, 2005, are those of HBDC
for all periods prior to the acquisition, and the financial statements of the consolidated companies from the acquisition date
forward. The historical shareholders' deficit of HBDC prior to the acquisition has been retroactively restated (a recapitalization)
for the equivalent number of shares received in the acquisition after giving effect to any differences in the par value of the
Company and HBDC's common stock, with an offset to additional paid-in capital. The restated consolidated retained earnings of
the accounting acquirer, HBDC, are carried forward after the acquisition.
During 2005 through October 1, 2007 our
operations were primarily that of our former Telesales and Insurint businesses. We effectively sold our former Telesales business
in 2009 and our former Insurint business in 2010. Our former Telesales and Insurint businesses are now classified as part of our
discontinued operations. Today w e are a technology company that provides software applications for use by insurance administrators
in the insurance industry. Our business focuses primarily on our InsPro software application.
We acquired Atiam Technologies, L.P. on
October 1, 2007 through our Atiam Technologies, LLC subsidiary. During the second quarter of 2009, Atiam Technologies, LLC was
renamed InsPro Technologies, LLC ("InsPro LLC"). InsPro LLC is a provider of comprehensive, web-based insurance administration
software applications. InsPro LLC's flagship software product is InsPro Enterprise, which was introduced in 2004. InsPro
LLC offers InsPro Enterprise on both a licensed and an ASP (Application Service Provider) basis. InsPro Enterprise is an insurance
administration and marketing system that supports group and individual business lines, and efficiently processes agent, direct
market, worksite and web site generated business. InsPro LLC's clients include insurance carriers and third party administrators.
InsPro LLC realizes revenue from the sale of software licenses, application service provider fees, software maintenance fees and
consulting and implementation services.
F-
8
INSPRO
TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 1 –
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(continued)
Basis of presentation
The consolidated financial statements
are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP").
The consolidated financial statements of the Company include the Company and its subsidiaries. All material inter-company balances
and transactions have been eliminated.
For purposes of comparability, certain
prior period amounts have been reclassified to conform to the 2011 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 2011 and 2010 include the warrant liability,
allowance for doubtful accounts, stock-based compensation, the useful lives of property and equipment and intangible assets, and
revenue recognition.
Cash and cash equivalents
The Company considers all liquid debt
instruments with original maturities of three months or less to be cash equivalents.
Restricted cash
Restricted cash pertained to all cash
and cash equivalents that were held in restricted accounts pertaining to the Company's letters of credit as restricted cash.
See Note 11 – Restricted Cash, Commitments and Contingencies.
Accounts receivable
The Company has a policy of establishing
an allowance for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an
analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account
balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. At December 31, 2011 and 2010, the Company has established, based on a review of its outstanding
balances, an allowance for doubtful accounts in the amount of $0 and $0, respectively.
The following table lists the percentage
of the Company's accounts receivable balance from the Company's two largest InsPro Enterprise clients.
As of December 31,
2011
2010
Largest InsPro client
33
%
42
%
Second largest InsPro client
27
%
15
%
F-
9
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value of financial instruments
The carrying amounts of financial instruments,
including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and capital leases
approximated fair value as of December 31, 2011, and December 31, 2010, because of the relatively short-term maturity of these
instruments and their market interest rates.
Effective January 1, 2008, the Company
adopted 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. The adoption of ASC 820 did not have an impact on the
Company's financial position or operating results, but did expand certain disclosures.
ASC 820 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1:
Observable inputs such as quoted market prices in active markets for
    identical assets or liabilities
Level 2:
Observable market-based inputs or unobservable inputs that are corroborated
    by market data
Level 3:
Unobservable inputs for which there is little or no market data, which
    require the use of the reporting entity's own assumptions.
The Company measured its warrant liability
using Level 3 inputs as defined by ASC 820.
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.
Intangible assets
Intangible assets consist of assets acquired
in connection with the acquisition of InsPro LLC and costs incurred in connection with the development of the Company's
software. See Note 3 – InsPro Technologies Acquisition and Note 5 – Intangible Assets.
F-
10
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company's capitalization of
software development costs for software used internally begins upon the establishment of technological feasibility of the software.
The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product
revenues, estimated economic life and changes in software and hardware technology. Capitalized software development costs are
amortized utilizing the straight-line method over the estimated economic life of the software not to exceed three years. We regularly
review the carrying value of software development assets and a loss is recognized when the unamortized costs are deemed unrecoverable
based on the estimated cash flows to be generated from the applicable software.
The Company's InsPro LLC subsidiary
capitalized certain costs valued in connection with developing or obtaining software for external use
.
These costs, which
consist of direct technology labor costs, are capitalized subsequent to the establishment of technological feasibility and until
the product is available for general release. Both prior and subsequent costs relating to the establishment of technological feasibility
are expensed as incurred. Development costs associated with product enhancements that extend the original product's life
or significantly improve the original product's marketability are also capitalized once technological feasibility has been
established. Software development costs are amortized on a straight-line basis over the estimated useful lives of the products
not to exceed two years, beginning with the initial release to customers. The Company continually evaluates whether events or
circumstances have occurred that indicate the remaining useful life of the capitalized software development costs should be revised
or the remaining balance of such assets may not be recoverable. The Company evaluates the recoverability of capitalized software
based on the net realizable value of its software products, as defined by the estimated future revenue from the products less
the estimated future costs of completing and disposing of the products, compared to the unamortized capitalized costs of the products.
Capitalized software development costs were fully amortized as of December 31, 2010.
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.
Warrant liability
The Company issued warrants, which contain
certain anti-dilution provisions that reduce the exercise price of the warrants in certain circumstances.  See Note
8 – Equity - Common Stock Warrants.
Upon the Company's adoption of the
Derivative and Hedging Topic of the FASB Accounting Standards Codification ("ASC 815") on January 1, 2009, the
Company determined that the warrants with provisions that reduce the exercise price of the warrants did not qualify for a scope
exception under ASC 815 as they were determined to not be indexed to the Company's stock as prescribed by ASC 815.  On
January 1, 2009, the warrants, under ASC 815, were reclassified from equity to warrant liability for the then relative fair market
value of $678,891.
F-
11
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company determined that the fair value
of the warrant liability for warrants issued during 2010 to be $3,145,016 in aggregate. The fair value of the warrant liability
for warrants issued during 2010 was determined on the dates of their issuance, which was recorded in warrant liability, using
the Black Scholes Option Pricing Model based on an expected term of 5 years, an assumed dividend yield of 0% and the following
assumptions:
Warrant Issue Date
Warrant
Exercise Price
Common
Stock Closing
Price
Aggregate
Number of
Warrants
Volatility
Risk Free Interest
Rate
Fair Value
3/26/2010
$
0.20
$
0.041
5,535,000
345
%
0.14
%
$
226,880
9/30/2010
0.15
0.120
18,000,010
392
%
0.19
%
2,159,973
11/29/2010
0.15
0.100
2,000,000
404
%
0.18
%
199,998
12/22/2010
$
0.15
$
0.070
7,973,780
476
%
0.18
%
558,165
$
3,145,016
For the year ended December 31, 2010,
the Company recorded a gain on the change in fair value of derivative liability of $1,136,588 to mark to market for the decrease
in fair value of the warrants during the year ended December 31, 2010.
The Company determined that the fair value
of the warrant liability at December 31, 2010 to be $4,030,340. The fair value was determined using the Black Scholes Option Pricing
Model based on the following assumptions: dividend yield: 0%, risk free rate: 0.2% and the following:
Warrant Issue Date
Warrant
Exercise Price
Aggregate
Number of
Warrants
Expected Term
(Years) of
Warrants
Volatility
Fair Value
1/15/2009
$
0.15
26,666,667
3.0
408
%
$
1,732,347
3/26/2010
0.15
7,380,000
4.2
446
%
479,697
9/30/2010
0.15
18,000,010
4.8
472
%
1,170,000
11/29/2010
0.15
2,000,000
4.9
480
%
130,000
12/22/2010
$
0.15
7,973,780
5.0
484
%
518,296
$
4,030,340
The following table presents a reconciliation
of the warrant liability measured at fair value on a recurring basis using significant unobservable input (Level 3) for the year
ended December 31, 2010:
Warrant liability balance as of December 31, 2009
$
2,021,912
Fair value of warrants issued during the year ended December 31, 2010
3,145,017
Fair value of warrants whose anti-dilution provisions expired during the year
    ended December 31, 2010
(1,123,710
)
Decrease in the fair value of warrants liability during
    the year ended December 31, 2010
(12,879
)
Warrant liability balance as of December 31, 2010
$
4,030,340
For the year ended December 31, 2011,
the Company recorded a gain on the change in fair value of derivative liability of $2,356,114 to mark to market for the decrease
in fair value of the warrants during the year ended December 31, 2011.
F-
12
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company determined the fair value
of the warrant liability at December 31, 2011 was $1,674,226. The fair value was determined using the Black Scholes Option Pricing
Model based on the following assumptions: dividend yield: 0%, risk free rate: 0.02% and the following:
Warrant Issue Date
Warrant
Exercise Price
Aggregate
Number of
Warrants
Expected Term
(Years) of
Warrants
Volatility
Fair Value
1/15/2009
$
0.15
26,666,667
2.0
521
%
$
719,674
3/26/2010
0.15
7,380,000
3.2
587
%
199,260
9/30/2010
0.15
18,000,010
3.8
599
%
486,000
11/29/2010
0.15
2,000,000
3.9
600
%
54,000
12/22/2010
$
0.15
7,973,780
4.0
600
%
215,292
$
1,674,226
The following table presents a reconciliation
of the warrant liability measured at fair value on a recurring basis using significant unobservable input (Level 3) for the year
ended December 31, 2011:
Warrant liability balance as of December 31, 2010
$
4,030,340
Decrease in the fair value of warrant liability during
    the year ended December 31, 2011, included in net loss
(2,356,114
)
Warrant liability balance as of December 31, 2011
$
1,674,226
Income taxes
The Company accounts for income taxes
under the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
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 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 2011 and 2010
are excluded from the calculation of diluted loss per common share because it is anti-dilutive.
F-
13
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company's common stock equivalents
include the following:
December 31,
2011
December 31,
2010
Series A convertible preferred stock issued and outstanding
25,535,000
25,535,000
Series B convertible preferred stock issued and outstanding
55,947,580
55,947,580
Options, issued, outstanding and exercisable
4,510,000
4,240,000
Warrants to purchase common stock, issued, outstanding and exercisable
91,987,344
93,162,344
Warrants to purchase series A convertible preferred stock,
    issued, outstanding and exercisable
6,000,000
3,000,000
183,979,924
181,884,924
Revenue recognition
InsPro LLC offers InsPro Enterprise 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. Alternatively, ASP hosting service enables a client to lease
the InsPro Enterprise software, paying only for that capacity required to support their business. ASP clients access InsPro Enterprise
installed on InsPro LLC owned servers located at InsPro LLC's offices or at a third party's site.
InsPro LLC'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.
InsPro LLC's consulting and implementation
services are generally associated with the implementation of an 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.
InsPro LLC's revenue is generally
recognized under ASC 985-605. For software arrangements involving multiple elements, 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 collectibility 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.
F-
14
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
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 collectibility 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 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.
The unearned portion of InsPro LLC'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.
See Note 2 - Discontinued Operations for
revenue recognition for discontinued operations.
Cost of revenues
Cost of revenues includes direct labor
and associated costs for employees and independent contractors performing InsPro Enterprise design, development, implementation
and testing together with customer management, training and technical support, as well as a portion of facilities, equipment and
software costs.
Advertising and other marketing
Advertising and other marketing costs
are expensed as incurred.
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"). In 2010 the FDIC insurance coverage limit has been permanently increased to $250,000 per depositor, per
institution as a result of the Dodd-Frank Wall Street and Consumer Protection Act. Beginning December 31, 2010, the FDIC has implemented
a new temporary insurance category to provide unlimited FDIC insurance coverage for funds held in noninterest-bearing transaction
accounts at insured banks. This temporary category will remain in effect through December 31, 2012.
At December 31, 2011, the Company had
$3,702,053 of cash in United States bank deposits, of which $1,529,216 was federally insured and $2,172,837 exceeded federally
insured limits.
F-
15
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The following table lists the percentage
of the Company's revenue was earned from the Company's two largest InsPro Enterprise clients.
For the Year ended
    December 31,
2011
2010
Largest InsPro client
29%
33%
Second largest InsPro client
20%
16%
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
The Company classifies as liability instruments
the fair value of registration rights agreements when such agreements (i) require it to file, and cause to be declared effective
under the Securities Act of 1933 as amended (the "Securities Act"), a registration statement with the Commission within
contractually fixed time periods, and (ii) provide for the payment of liquidating damages in the event of its failure to comply
with such agreements. Registration rights with these characteristics are accounted for as (i) derivative financial instruments
at fair value and (ii) contracts that are (a) indexed to and potentially settled in an issuer's own stock and (b) permit gross
physical or net share settlement with no net cash settlement alternative are classified as equity instruments.
At December 31, 2011, the Company does
not believe that it is probable that the Company will incur a penalty in connection with the Company's registration rights
agreements. Accordingly no liability was recorded as of December 31, 2011. See Note 8- Shareholders Equity – Registration
and Participation Rights.
Recent accounting pronouncements
In May 2011, the FASB issued guidance
and clarification about the application of existing fair value measurements and disclosure requirements. This guidance will be
effective for interim and fiscal periods beginning after December 15, 2011. We will review the requirements under the standard
to determine what impacts, if any, the adoption would have on our consolidated financial statements.
F-
16
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In June 2011, FASB issued guidance
which eliminates the current option to report other comprehensive income and its components in the statement of changes in equity.
The guidance requires all nonowner changes in stockholders' equity to be presented either in a single continuous statement
of comprehensive income or in two separate but consecutive statements, and requires presentation on the face of the financial
statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income. This
guidance is effective for fiscal periods beginning after December 15, 2011. The adoption of this standard will not impact
our consolidated financial statements.
In September 2011, the FASB amended its
guidance regarding the disclosure requirements for employers participating in multiemployer pension and other postretirement benefit
plans (multiemployer plans) to improve transparency and increase awareness of the commitments and risks involved with participation
in multiemployer plans. The new accounting guidance requires employers participating in multiemployer plans to provide additional
quantitative and qualitative disclosures to provide users with more detailed information regarding an employer's involvement
in multiemployer plans. The provisions of this new guidance are effective for annual periods beginning with fiscal years ending
after December 15, 2011, with early adoption permitted. The Company anticipates that adoption of these additional disclosures
will not have a material effect on our consolidated financial statements.
In September 2011, the FASB issued ASU
No. 2011-08,
Intangibles-Goodwill and Other (Topic 350)-Testing Goodwill for Impairment
. The amendments in this ASU are
effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011. The Company
does not anticipate the provisions of ASU 2011-08 will have a material effect on our consolidated financial statements.
Other accounting standards that have been
issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the
consolidated financial statements upon adoption.
NOTE 2 –
DISCONTINUED OPERATIONS
The Company has classified its former
telesales call center and external agent produced agency business (the "Agency Business"), its former Insurint business,
and its leased offices located in New York and Florida as discontinued operations.
During the first quarter of 2009, the
Company ceased the direct marketing and sale of health and life insurance and related products to individuals and families in
its Telesales call center. The Company also determined to discontinue selling health and life insurance and related products to
individuals and families through its non employee ISG agents. On February 20, 2009 (the "Closing Date"), the Company
entered into and completed the sale of the Agency Business to eHealth Insurance Services, Inc. ("eHealth"), an unaffiliated
third party, pursuant to the terms of a Client Transition Agreement (the "Agreement").
Pursuant to the Agreement the Company
transferred to eHealth the broker of record status and the right to receive commissions on certain of the in-force individual
and family major medial health insurance policies and ancillary dental, life and vision insurance policies issued by Aetna, Inc.,
Golden Rule, Humana, PacifiCare, Inc., Assurant and United Healthcare Insurance Co. (collectively, the "Specified Carriers")
on which the Company was designated as broker of record as of the Closing Date (collectively, the "Transferred Policies"
and each, a "Transferred Policy"). Certain policies and products were excluded from the transaction, including the
Company's agency business generated through its ISG agents, all short term medical products and all business produced through
carriers other than the Specified Carriers. In addition, the Agreement also provides for the transfer to eHealth of certain lead
information relating to health insurance prospects (the "Lead Database").
F-
17
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 2 –
DISCONTINUED OPERATIONS
(continued)
Pursuant to the Agreement eHealth has
agreed to pay to HBDC II, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("HBDC II"), a
portion of each commission payment received by eHealth and reported by the Specified Carrier relating to a Transferred Policy
for the duration of the policy, provided that eHealth remains broker of record on such Transferred Policy.
On March 31, 2010, the Company entered
into and completed an asset purchase agreement for the sale of Insurint (the "Insurint Sale Agreement") with an unaffiliated
third party. Pursuant to the terms of the Insurint Sale Agreement, the Company sold substantially all of the assets used in the
Company's former Insurint business, including the Insurint software, the www.insurint.com web site, other intellectual property
specific to Insurint, including but not limited to the customer base, and all future revenue pertaining to Insurint. The buyer
agreed to assume future Insurint commitments and expenses subsequent to March 31, 2010. Pursuant to the Insurint Sale Agreement,
the Company will receive in aggregate $625,000 in cash from the buyer of Insurint, of which $312,500 was received on April 1,
2010 and the $312,500 balance will be received over 23 equal monthly installments in the amount of $13,020.83, with the first
monthly payment due on May 1, 2010, and the last monthly payment in the amount of $13,020.91 and due on April 1, 2012. The Company
recorded a gain on the sale of Insurint of $578,569 on March 31, 2010.
Revenue Recognition for Discontinued
Operations
Our discontinued operations generates
revenue primarily from transition policy commissions pursuant to the Agreement, renewal commissions paid to the Company by insurance
companies based upon the insurance policies sold to consumers by the Company's Agency Business prior to the Closing Date,
and sub-leasing revenue.
We recognize commissions and other revenue
from carriers after we receive notice that the insurance carrier has received payment of the related premium. The Company recognizes
as revenue commission payments received from eHealth in connection with the Agreement upon the Company's notification by
eHealth of such amounts.
The Company also generated revenue in
2010 from the sub-lease of our leased New York City office, which was sub-leased on a month to month basis through December 31,
2010, and also from the sub-lease of our leased Deerfield Beach Florida office, which was leased under operating leases through
February 28, 2011. We recognized sub-lease revenue when lease rent payments are due in accordance with the sub-lease agreements.
Recognition of sub-lease revenue commences when control of the facility has been given to the tenant.
The financial position of discontinued
operations was as follows:
December 31, 2011
December 31, 2010
Accounts receivable
$
49,779
$
149,913
Deferred compensation advances
-
200
Prepaid expenses
-
4,332
Other current assets
54,227
174,103
Other assets
-
51,227
Accounts payable
-
(82,431
)
Accrued expenses
-
(134,203
)
Sub-tenant security deposit
-
(99,840
)
Net current assets of discontinued operations
$
104,006
$
63,301
F-
18
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 2 –
DISCONTINUED OPERATIONS
(continued)
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 Year Ended December 31,
2011
2010
Revenues:
Commission and other revenue from carriers
$
178,705
$
452,360
Transition policy commission pursuant to the Agreement
703,311
1,114,477
Gain on the sale of Insurint
-
578,569
Gain on disposal of property and equipment
-
6,530
Lead sale revenue
-
156
Insurint revenue
-
53,340
Sub-lease revenue
150,054
1,219,723
1,032,070
3,425,155
Operating expenses:
Salaries, employee benefits and related taxes
11,200
238,698
Rent, utilities, telephone and communications
171,687
312,068
Professional fees
(1,961
)
182,424
Other general and administrative
47,155
228,290
228,081
961,480
Gain from discontinued operations
$
803,989
$
2,463,675
NOTE 3 -
ACQUISITION OF INSPRO TECHNOLOGIES
On October 1, 2007, HBDC Acquisition,
LLC ("HBDC Sub"), a Delaware limited liability company and wholly-owned subsidiary of the Company, entered into an
Agreement to Transfer Partnership Interests (the "Bilenia Agreement") with the former partners (the "Bilenia
Partners") of BileniaTech, L.P., a Delaware limited partnership ("Bilenia"), whereby HBDC Sub purchased all
of the outstanding general and limited partnership interests of Atiam Technologies, L.P., a Delaware limited partnership, owned
by the Bilenia Partners. Bilenia owned approximately 40% of Atiam Technologies, L.P. The execution of the Bilenia Agreement and
the transfer of the Atiam partnership interests to HBDC Sub thereunder were conditions precedent to the closing of the Merger
Agreement (as defined below) on October 1, 2007 (the "Atiam Closing Date").
The aggregate amount paid by HBDC Sub
to the Bilenia Partners for the Atiam partnership interests under the Bilenia Agreement was $1,000,000, consisting of $500,000
in cash and 224,216 shares of the Company's common stock, which shares had an aggregate value of $500,000 based on the average
closing price per share ($2.23) of Company common stock on The Over the Counter Bulletin Board ("OTCBB") on the five
consecutive trading days preceding the Atiam Closing Date.
On September 21, 2007, the Company entered
into an Agreement and Plan of Merger (the "Atiam Merger Agreement") by and among the Company, HBDC, System Consulting
Associates, Inc., a Pennsylvania corporation ("SCA"), and the shareholders of SCA party thereto (the "Shareholders").
SCA owned approximately 60% of Atiam Technologies, L.P. The Company and SCA closed on the Merger on October 1, 2007.
F-
19
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 3 –
ACQUISITION OF INSPRO
TECHNOLOGIES (continued)
The Atiam Merger Agreement provided for
a business combination whereby SCA would be merged with and into HBDC Sub, with HBDC Sub continuing as the surviving corporation
and as a wholly-owned subsidiary of the Company (the "Atiam Merger"). The aggregate amount paid by the Company with
respect to all outstanding shares of capital stock of SCA (such amount, the "Atiam Merger Consideration") was $2,000,000,
consisting of (a) $850,000 in cash and (b) 515,697 unregistered shares of the Company's common stock, which number
of shares had a value of $1,150,000 based on the average closing price per share ($2.23) of Common Stock on OTCBB on the five
consecutive trading days preceding the closing date. Upon the effectiveness of the Atiam Merger, each share of SCA common stock
issued and outstanding immediately prior to the closing date was converted into the right to receive a pro rata portion of the
Atiam Merger Consideration. The Company placed certificates representing 134,529 shares, or an amount equal to $300,000, of the
Company's common stock that otherwise would be payable to the Shareholders as Atiam Merger Consideration into an escrow
account, which shares were held in escrow for a period of one year to satisfy any indemnification claims by the Company or HBDC
Sub under the Atiam Merger Agreement.
Through October 1, 2007, SCA operated
through Atiam Technologies, L.P. Subsequent to October 1, 2007, SCA was merged into HBDC Sub, which was subsequently renamed Atiam
Technologies, LLC in 2007 and subsequently renamed InsPro Technologies, LLC in 2009 and operates as the Company's InsPro
LLC business. The results of InsPro LLC have been included in the Company's statement of operations as of October 1, 2007.
The Company accounted for the acquisition
of InsPro LLC using the purchase method of accounting. Our calculation for the consideration paid for InsPro LLC in connection
with the Bilenia Agreement and the Atiam Merger Agreement in the aggregate was $3,080,744 and consisted of the following:
Cash payments to sellers
$
1,350,000
Fair value of common stock issued to sellers
1,650,006
Direct transaction fees and expenses
80,738
$
3,080,744
We estimated the fair values of InsPro
LLC's assets acquired and liabilities assumed at the date of acquisition as follows:
Cash
$
608,534
Accounts receivable
643,017
Prepaid expenses & other assets
22,623
Property and equipment, net
158,819
Other Assets – Refunds
3,401
Intangible Assets
2,097,672
Accounts payable
(34,278
)
Accrued expenses
(122,675
)
Income Taxes Payable
(157,288
)
Deferred Revenue
(120,000
)
Long and short term capital lease obligations
(19,081
)
$
3,080,744
F-
20
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 3 –
ACQUISITION OF INSPRO
TECHNOLOGIES (continued)
Intangible assets acquired from InsPro
LLC were assigned the following values: value of client contracts and relationships other than license with an assigned value
of $1,089,223 amortized straight line over five years; value of purchased software for sale and licensing value with an assigned
value of $644,449 amortized straight line over five years; and employment and non-compete agreements acquired with an assigned
value of $364,000 amortized straight line over three years. Intangible assets acquired from InsPro LLC had the following unamortized
values as of December 31, 2011; value of client contracts and relationships other than licensing of $163,383; and value of purchased
software for sale and licensing value of $96,667.
NOTE 4 -
PROPERTY AND EQUIPMENT
Property and equipment consisted of the
following:
Useful
Life
(Years)
At December 31, 2011
At December 31, 2010
Computer equipment and software
3
$
1,354,525
$
1,139,721
Office equipment
4.6
204,442
194,360
Office furniture and fixtures
6.7
189,857
191,363
Leasehold improvements
9.8
34,034
34,034
1,782,858
1,559,478
Less accumulated depreciation
(1,286,166
)
(945,860
)
$
496,692
$
613,618
For the years ended December 31, 2011
and 2010, depreciation expense was $340,306 and $395,365, respectively.
NOTE 5 –
INTANGIBLE ASSETS
Intangible assets consisted of the following:
Useful
Life
(Years)
At December 31, 2011
At December 31, 2010
InsPro Technologies intangible assets acquired
4.7
$
2,097,672
$
2,097,672
Software development costs for external
    marketing
2
174,296
174,296
2,271,968
2,271,968
Less:  accumulated amortization
(2,011,918
)
(1,665,183
)
$
260,050
$
606,785
For the years ended December 31, 2011
and 2010, amortization expense was $346,735 and $481,280 respectively.
Amortization expense subsequent to the
period ended December 31, 2011 is $260,050 in 2012.
F-
21
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 6 –
SECURED NOTE FROM RELATED
PARTY
On December 22, 2009, the Company and
its subsidiaries entered into a Loan Agreement (the "Loan Agreement") and a $1,250,000 Secured Promissory Note (the
"Note") with The Co-Investment Fund II, L.P. ("Co-Investment"). Co-Investment is the controlling stockholder
of the Company and a designee of Cross Atlantic Capital Partners, Inc., of which Frederick C. Tecce, one of our directors, is
a managing partner and of which Donald Caldwell, also one of our directors and Chairman of our board of directors, is Chairman
and Chief Executive Officer.
Pursuant to the terms of the Loan Agreement
and the Note, Co-Investment extended the principal sum of $1,250,000 (the "Loan") to the Company and its subsidiaries
(collectively, the "Borrowers"). Pursuant to the Note, the Borrowers agreed to pay to the order of Co-Investment,
the outstanding principal amount of the Note plus interest.  Interest accrued on the unpaid principal balance of the Note
at an annual rate of 8%, except in the case of an event of default as set forth in the Loan Agreement, in which case the rate
of interest would increase to 11% until such event of default is cured. All principal and accrued interest was due and payable
on December 22, 2010.  Co-Investment may have accelerated payment of the Loan in the event of default on the Loan as set
forth in Loan Agreement.
On June 15, 2010, the Company and Co-Investment
agreed to modify the terms of the Loan Agreement and the Note to: (i) increase the Loan from $1,250,000 to $2,250,000 on June
15, 2010 and (ii) allow Co-Investment to require the Company to repay to Co-Investment an amount not to exceed the loan balance
plus accrued interest in the form of the Company's equity securities at the conversion price and terms identical to the
price and terms of the Company's next issuance of common or preferred stock issued for cash consideration occurring after
June 15, 2010 (an "Equity Issuance"). An Equity Issuance occurred on September 30, 2010. The Company and Co-Investment
agreed in the event that the Company did not have a sufficient number of authorized shares of its equity securities to issue to
Co-Investment the Company and Co-Investment would jointly cooperate with one another in obtaining the necessary shareholder approval
to increase the number of authorized shares of the Company's equity securities and the effective date of the issuance and
repayment would be the date of the Company's shareholder approval.
On December 22, 2010, the Company entered
into and completed a note conversion (the "Note Conversion") with Co-Investment, in which as consideration for the
repayment of the Note and accrued interest in the amount in aggregate of $2,392,136 the Company issued an aggregate of 797,378
shares of its Series B Convertible Preferred Stock, par value $0.001 per share ("Series B Preferred Stock"), warrants
to purchase 7,973,780 shares of its common stock, par value $0.001 ("Common Stock") and $2.40 in cash, as full repayment
of all outstanding principal and accrued interest under the Loan Agreement and Note pursuant to the terms of a note conversion
agreement (the "Conversion Agreement"). See Note 8 – Shareholders' Equity – Series A Preferred Stock.
NOTE 7 –
RELATED PARTY TRANSACTIONS
Effective with the March 26, 2010 expiration
of a subscription rights offering Co-Investment exercised 1,000 basic subscription rights for $1,000,000 and the Company issued
to Co-Investment 250,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share ("Series A Preferred
Stock") and five-year warrants to purchase in aggregate 5,000,000 shares of Common Stock at an exercise price of $0.20 per
share. See Note 8 - Shareholders' Equity– Series A Preferred Stock and Common Stock Warrants - 2010.
F-
22
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 7 –
RELATED PARTY TRANSACTIONS
(continued)
On September 30, 2010, the Company entered
into and completed a private placement (the "2010 Private Placement") with certain accredited investors, including
Independence Blue Cross, a Pennsylvania hospital plan corporation ("Independence Blue Cross"), for an aggregate of
1,800,001 shares of Series B Preferred Stock, and warrants ("September 2010 Warrants") to purchase 18,000,010 shares
of our Common Stock, pursuant to the terms of a securities purchase agreement (the "2010 Purchase Agreement"). Independence
Blue Cross purchased an aggregate of 1,666,667 shares of Series B Preferred Stock, and September 2010 Warrants to purchase 14,666,670
shares of Common Stock. See Note 8 - Shareholders' Equity– Series A Preferred Stock and Common Stock Warrants - 2010.
In connection with the 2010 Private Placement,
Equity Issuance the Company agreed to amend the warrants issued to Co-Investment in connection with the 2009 Private Placement
and the warrants issued to Co-Investment and other investors in connection with the Company's March 2010 rights offering
(the "Prior Warrants") such that the expiration dates of the anti-dilution provisions of the Prior Warrants were extended
to the expiration date of the anti-dilution provisions of the warrants issued in the 2010 Private Placement. See Note 8 - Shareholders'
Equity – Common Stock Warrants - 2010.
On December 22, 2010, as consideration
for the repayment of the Note and accrued interest in the amount in aggregate of $2,392,136 the Company issued to Co-Investment
an aggregate of 797,378 shares of its Series B Preferred Stock, warrants to purchase 7,973,780 shares of its Common Stock in accordance
with the Conversion Agreement and $2.40 cash. See Note 6 – Secured Note from Related Party. See Note 8 – Shareholders'
Equity– Series B Preferred Stock and Common Stock Warrants - 2010.
NOTE 8 –
SHAREHOLDERS'
EQUITY
Common Stock
Effective November 18, 2010, our shareholders
approved an amendment to our certificate of incorporation, as amended, to increase the number of authorized shares of Common Stock
from 200,000,000 shares to 300,000,000 shares.
Preferred Stock
Effective November 18, 2010, our shareholders
approved an amendment to our certificate of incorporation, as amended, to increase the number of authorized shares of preferred
stock from 10,000,000 shares to 20,000,000 shares.
Series A Preferred Stock
On January 14, 2009, the Company filed
a Certificate of Designation with the Secretary of State of the State of Delaware. The Certificate of Designation was approved
by the Company's Board of Directors on January 12, 2009 and became effective upon filing. The Certificate of Designation
provides for the terms of the Company's Series A Preferred Stock issued pursuant to the 2009 Purchase Agreement.
On January 15, 2009, the Company completed
the 2009 Private Placement with Co-Investment, for an aggregate of 1,000,000 shares of its Series A Preferred Stock, and warrants
to purchase 1,000,000 shares of its Series A Preferred Stock, pursuant to the terms of the 2009 Purchase Agreement. The gross
proceeds from the closing were $4,000,000 and the Company intends to use the net proceeds of the 2009 Private Placement for working
capital purposes.
F-
23
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
Pursuant to the 2009 Purchase Agreement,
the Company agreed to sell to Co-Investment 1,000,000 investment units (each, a "2009 Unit") in the 2009 Private Placement
at a per 2009 Unit purchase price equal to $4.00. Each 2009 Unit sold in the 2009 Private Placement consisted of one share of
Series A Preferred Stock and a warrant to purchase one share of Series A Preferred Stock at an initial exercise price of $4.00
per share, subject to adjustment (the "2009 Warrant").
The Series A Preferred Stock is entitled
to vote as a single class with the holders of the Company's common 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. Each share of Series A Preferred Stock becomes convertible into 20 shares of common stock, subject to adjustment and at
the option of the holder of the Series A Preferred Stock, immediately after shareholder approval of the Charter Amendment (as
defined below). 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.
The Company was required, under the terms
of the 2009 Purchase Agreement, to file a proxy statement (the "Proxy Statement") and hold a special meeting of the
Company's shareholders (the "Special Meeting") within 75 days of the effective date of the 2009 Purchase Agreement
for the purpose of approving a certificate of amendment to the Company's certificate of incorporation to increase the total
number of the Company's authorized shares of common stock from 90,000,000 to 200,000,000 (the "Charter Amendment").
Under the terms of the 2009 Purchase Agreement, Co-Investment agreed to vote all Preferred Shares and shares of common stock beneficially
owned by it in favor of the Charter Amendment at the Special Meeting. The Company filed a Proxy Statement and on March 25, 2009
held a Special Meeting of shareholders whereby shareholders voted and approved the Charter Amendment.
The Company allocated the $4,000,000 proceeds
received from the 2009 Private Placement net of $55,617 of costs incurred to complete 2009 Private Placement to the Preferred
Shares and 2009 Warrants based on their relative fair values, which were determined to have a fair value in aggregate of $3,758,306.
The Company determined the 2009 Warrants are properly classified as an equity instrument. The Company recorded the value of the
Preferred Shares as $1,983,984 and the value of the 2009 Warrants as $1,960,399 in additional paid in capital. The Company determined
the fair value of the Preferred Shares to be $1,900,000 based on the closing price of the Company's common stock on January
15, 2009 and the 20 to 1 conversion ratio of the Preferred Shares into shares of common stock. The Company determined the fair
value of the 2009 Warrants to be $1,877,412 using a Black-Scholes option pricing model with the following assumptions: expected
volatility of 236%, a risk-free interest rate of 0.12%, an expected term of 5 years and 0% dividend yield.
F-
24
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
On January 14, 2010 the Company filed
a prospectus for a rights offering on Form S-1/A, which the Commission declared effective on January 22, 2010, to distribute to
shareholders at no charge, one non-transferable subscription right for each 12,256 shares of our common stock and 613 shares of
our Series A Preferred Stock owned as of January 1, 2010, 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. This rights offering was designed to give all of the holders of the Company's common stock the opportunity
to participate in an equity investment in the Company on the same economic terms as the Company's 2009 Private Placement.
The basic subscription right entitled
the holder to purchase one unit (a "Subscription Unit") at a subscription price of $1,000. A Subscription Unit consisted
of 250 shares of Series A Preferred Stock and a five-year warrant to purchase 5,000 shares of common stock at an exercise price
of $0.20 per share. In the event that a holder of subscription rights purchased all of the basic Subscription Units available
to the holder then pursuant to their basic subscription rights, 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 26, 2010, holders of subscription rights exercised in aggregate 1,061 basic subscription rights
and 46 over-subscription rights for a total 1,107 Subscription Units. As a result of the exercise of 1,107 subscription rights
the Company received $1,107,000 in gross proceeds, and on March 26, 2010, issued in aggregate 276,750 shares of Series A Preferred
Stock and five-year warrants to purchase in aggregate 5,535,000 shares of common stock at an exercise price of $0.20 per share.
Effective with the expiration of the rights offering all unexercised subscription rights expired. The Series A Preferred Stock
issued in 2010 has the same terms as the Series A Preferred Stock issued in 2009.
The Company allocated $226,880 of the
$1,107,000 proceeds received as a result of the exercise of Subscription Units to the warrant liability using a Black-Scholes
option pricing model with the following assumptions: expected volatility of 345%, a risk-free interest rate of 0.14%, an expected
term of 5 years and 0% dividend yield. See Note 1 – Warrant Liability. The remaining $880,120 of the proceeds received was
allocated to the Series A Preferred Stock.
Series B Preferred Stock
On September 30, 2010, the Company filed
a Certificate of Designation with the Secretary of State of the State of Delaware. The Certificate of Designation was approved
by the Company's Board of Directors on September 9, 2010 and became effective upon filing. The Certificate of Designation
provides for the terms of the Company's Series B Preferred Stock issued pursuant to the 2010 Purchase Agreement.
On September 30, 2010, the Company entered
into and completed the 2010 Private Placement with the participating investors, including Independence Blue Cross (the "Investors"),
for an aggregate of 1,800,001 shares of Series B Preferred Stock, and September 2010 Warrants to purchase 18,000,010 shares of
its Common Stock, pursuant to the terms of the 2010 Purchase Agreement. The gross proceeds from the closing were $5.4 million
and the Company intends to use the net proceeds of the 2010 Private Placement for working capital purposes.
Pursuant to the 2010 Purchase Agreement,
the Company agreed to sell to the Investors 1,800,001 investment units (each, a "2010 Unit") in the 2010 Private Placement
at a per 2010 Unit purchase price equal to $3.00. Each 2010 Unit sold in the 2010 Private Placement consisted of one share of
Series B Preferred Stock and a September 2010 Warrant to purchase ten shares of Common Stock at an initial exercise price of $0.15
per share, subject to adjustment.
F-
25
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
The Series B Preferred Stock is entitled
to vote as a single class with the holders of the Company's common and preferred stock, with each share of Series B Preferred
Stock having the right to 20 votes. Upon the liquidation, sale or merger of the Company, each share of 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, 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 and preferred stock on an as-converted basis. Each share of Series
B Preferred Stock becomes convertible into 20 shares of common stock, subject to adjustment and at the option of the holder of
the Series B Preferred Stock. For so long as any shares of Series B Preferred Stock are outstanding, the vote or consent of the
holders of at least two-thirds of the Series B Preferred Stock is required to approve (Y) any amendment to the Company's
certificate of incorporation or bylaws that would adversely alter the voting powers, preferences or special rights of the Series
B Preferred Stock or (Z) any amendment to the Company's certificate of incorporation to create any shares of capital stock
that rank senior to the Series B Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 shares
of Series B Preferred Stock are outstanding, the vote or consent of the holders of at least two-thirds of the shares of Series
B Preferred Stock is required to effect or validate any merger, sale of substantially all of the assets of the Company or other
fundamental transaction, unless such transaction, when consummated, will provide the holders of Series B Preferred Stock with
an amount per share equal the Series B Preferred Stock original issue price in aggregate for all issued and outstanding Series
B Preferred Stock.
Under the terms of the 2010 Purchase Agreement,
and subject to the approval of the Company's shareholders of the amendment to the Certificate of Incorporation of the Company
to increase the number of shares of authorized Common Stock of the Company, the Company sold an additional 200,000 Units to the
Investors on November 29, 2010, on the same terms and conditions as described in the 2010 Purchase Agreement (the "Subsequent
Closing").
The Company agreed, pursuant to the terms
of the 2010 Purchase Agreement, that, except for the Follow-on Financing (as defined in the 2010 Purchase Agreement), for a period
of 90 days after the effective date (the "Initial Standstill") of the 2010 Purchase Agreement, the Company would not,
subject to certain exceptions, offer, sell, grant any option to purchase, or otherwise dispose of any equity securities or equity
equivalent securities, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument
that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, capital stock and
other securities of the Company.
The Company allocated $2,159,973 of the
$5,400,001 proceeds received as a result of the 2010 Purchase Agreement to the warrant liability using a Black-Scholes option
pricing model with the following assumptions: expected volatility of 392%, a risk-free interest rate of 0.19%, an expected term
of 5 years and 0% dividend yield. See Note 1 – Warrant Liability. The remaining $3,240,028 of the proceeds received was
allocated to the Series B Preferred Stock less $30,505 of legal expenses incurred as a result of the 2010 Purchase Agreement.
On November 29, 2010, the Company completed
the Subsequent Closing and issued 200,000 shares of Series B Preferred Stock and a warrant to purchase 2,000,000 shares of the
Company's Common Stock at an initial exercise price of $0.15 per share, subject to adjustment, to Independence Blue Cross.
The Company allocated $199,998 of the $600,000 proceeds received as a result of the Subsequent Closing to the warrant liability
using a Black-Scholes option pricing model with the following assumptions: expected volatility of 404%, a risk-free interest rate
of 0.18%, an expected term of 5 years and 0% dividend yield. See Note 1 – Warrant Liability. The remaining $400,002 of the
proceeds received was allocated to the Series B Preferred Stock.
F-
26
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
On December 22, 2010, the Company entered
into and completed the Note Conversion with Co-Investment, in which as consideration for the repayment of the Note and accrued
interest in the amount in aggregate of $2,392,136 the Company issued an aggregate of 797,378 shares of Series B Preferred Stock,
warrants to purchase 7,973,780 shares of its Common Stock and $2.40 in cash, as full repayment of all outstanding principal and
accrued interest under the Loan Agreement and Note pursuant to the terms of the Conversion Agreement. The Company allocated $558,165
of the $2,392,136 gross proceeds received as a result of the Note Conversion to the warrant liability using a Black-Scholes option
pricing model with the following assumptions: expected volatility of 476%, a risk-free interest rate of 0.18%, an expected term
of 5 years and 0% dividend yield. See Note 1 – Warrant Liability. The Company allocated the remaining $1,833,969 of the
gross proceeds received to the Series B Preferred Stock less $15,800 of legal expenses incurred as a result of the Note Conversion.
On December 22, 2010, the Company filed
a Certificate of Amendment to the Certificate of Designation of Series B Convertible Preferred Stock (the "Series B Certificate
of Amendment") with the Secretary of State of the State of Delaware. The Series B Certificate of Amendment was approved
by the Company's Board of Directors on December 20, 2010 and became effective upon filing. The Series B Certificate of Amendment
increases the number of authorized shares of Series B Preferred Stock from 2,250,000 to 5,000,000.
Stock Options
2010
On March 25, 2010 the Company issued to
an executive of the Company a stock option to purchase a total of 250,000 shares of the Company's common stock, which vests
as follows: 50,000 shares of common stock on each of July 31, 2010, January 31, 2011, July 31, 2011, January 31, 2012 and July
31, 2012. This option has a five year term and an exercise price of $0.06, which is equal to closing price of one share of the
Company's common stock as quoted on the OTCBB on March 25, 2010.
On July 9, 2010 the Company issued to
five executives of the Company stock options in aggregate to purchase a total of 500,000 shares of the Company's common
stock, which vests as follows: 125,000 shares of common stock on each of January 9, 2011, July 9, 2011, January 9, 2012 and July
9, 2012. These options have a five year term and an exercise price of $0.065, which is equal to closing price of one share of
the Company's common stock as quoted on the OTCBB on July 9, 2010.
On August 18, 2010, the board of directors
of the Company adopted the Company's 2010 Equity Compensation Plan ("the 2010 Plan"), which plan was subject to shareholder
approval. An aggregate of 1,500,000 shares of the Company's common stock have been reserved for issuance under the 2010
Plan in addition to any authorized and unissued shares of common stock available for issuance under the 2008. The purpose of the
2010 Plan is to provide a comprehensive compensation program to attract and retain qualified individuals to serve as employees,
directors or key outside consultants. The Company is authorized to award cash fees and issue non-qualified stock options under
the 2010 Plan. The 2010 Plan is administered by the Company's board of directors or the compensation committee established
by the board.
On August 18, 2010 the Company issued
to Mr. Oakes a stock option grant under the 2010 Plan, subject to shareholder approval, to purchase a total of 1,500,000 shares
of the Company's common stock, which vests as follows: 375,000 shares of common stock on each of June 30, 2011, 2012, 2013
and 2014. This option grant has a five year term and an exercise price of $0.111, which is equal to closing price of one share
of the Company's common stock as quoted on the OTCBB on August 18, 2010. As of September 30, 2010 there were 1,500,000 options
granted under the 2010 Plan.
F-
27
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
During the year ended December 31, 2010,
850,000 options previously granted to Mr. Alvin Clemens, the former Co-Chairman of the Company's board, were forfeited as
a result of Mr. Clemens resignation from the board in accordance with the terms of the stock options. During the year ended December
31, 2010, 416,648 options previously granted to Mr. Charles Eissa, the former COO of the Company, were forfeited as a result of
Mr. Eissa's termination of employment in accordance with the terms of the stock option. Also during the year ended December
31, 2010, 70,000 options previously granted to other former employees were forfeited in accordance with the terms of the stock
options.
Effective November 18, 2010, our shareholders
approved the adoption of the 2010 Plan and the August 18, 2010 stock option grant to Mr. Oakes. Pursuant to the terms of the 2010
Plan, the 2008 Plan was merged with and into the 2010 Plan effective as of November 18, 2010. No additional grants will be made
thereafter under the 2008 Plan. Outstanding grants under the 2008 Plan will continue in effect according to their terms as in
effect before the plan merger and the common shares with respect to outstanding grants under the 2008 Plan will be issued or transferred
under the 2010 Plan.
2011
During 2011, 425,000 options previously
granted to Warren Musser, the former vice chairman of the Company's board of directors, expired in accordance with the terms
of the stock options. During 2011, 330,000 options previously granted to various current and former employees expired in accordance
with the terms of the stock options.
On June 20, 2011, the Company issued to
Mr. Michael Mullin, who is InsPro Technologies' Chief Operating Officer, a stock option grant to purchase a total of 1,000,000
shares of the Company's common stock, which vests as follows: 200,000 shares of common stock on each of December 20, 2011
and June 20, 2012, and 300,000 shares of common stock on each of June 20, 2013 and June 20, 2014. This option has a five year
term and an exercise price of $0.10, which is equal to the closing price of one share of the Company's common stock as quoted
on the OTCBB on June 20, 2011. The fair value of the option granted to Mr. Mullin was estimated as of the date of grant using
the Black-Scholes option-pricing model based on the following assumptions: Expected volatility: 516%, risk-free interest rate:
0.03%, expected life in years: 5, and assumed dividend yield: 0%.
The Company recorded compensation expense
pertaining to employee stock options and restricted and unrestricted stock grants as follows:
For year ended December 31,
2011
2010
Salaries, commission and related taxes
$
94,302
$
38,229
Loss from discontinued operations
-
12,300
$
94,302
$
50,529
F-
28
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
A summary of the Company's outstanding
stock options as of and for the years ended December 31, 2011 and 2010 are as follows:
Number
Weighted
Of Shares
Average
Weighted
Underlying
Exercise
Average
Options
Price
Fair Value
Outstanding at December 31, 2009
5,676,648
$
1.11
$
0.63
For the year ended December 31, 2010
Granted
2,250,000
0.10
0.10
Exercised
-
-
-
Forfeited
(1,336,648
)
1.31
0.30
Outstanding at December 31, 2010
6,590,000
0.41
0.43
For the year ended December 31, 2011
Granted
1,000,000
0.10
0.10
Exercised
-
-
-
Expired
(755,000
)
1.80
1.42
Outstanding at December 31, 2011
6,835,000
$
0.47
$
0.32
Outstanding and exercisable at December 31, 2011
4,510,000
$
0.66
$
0.44
The weighted average fair value of option
grants are estimated as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions for
options granted during the years ended December 31, 2011 and 2010:
For the Year Ended
December
    31, 2011
For the Year Ended
December
    31, 2010
Expected volatility
516
%
380
%
Risk-free interest rate
0.03
%
0.19
%
Expected life in years
5.0
5.0
Assumed dividend yield
0
%
0
%
F-
29
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
The following information applies to options
outstanding at December 31, 2011:
Options Outstanding
Options Exercisable
Exercise
Price
Number of
Shares
Underlying
Options
Weighted
Average
Remaining
Contractual
Life
Exercise
Price
Number
Exercisable
Exercise
Price
$
0.060
405,000
2.8
$
0.060
305,000
$
0.060
0.065
500,000
3.5
0.065
200,000
0.065
0.100
2,955,000
2.1
0.100
2,155,000
0.100
0.111
1,500,000
3.6
0.111
375,000
0.111
1.000
1,000,000
3.9
1.000
1,000,000
1.000
3.500
75,000
4.3
3.500
75,000
3.500
$
3.600
400,000
4.3
$
3.600
400,000
$
3.600
6,835,000
4,510,000
As of December 31, 2011, there were 30,000,000
shares of our common stock authorized to be issued under the 2010 Plan, of which 22,161,980 shares of our common stock remain
available for future stock option grants.
The total intrinsic value of stock options
granted during 2011 and 2010 was $0 and $0, respectively.  The total intrinsic value of stock options outstanding and exercisable
as of December 31, 2011 and December 31, 2010 was $0 and $0, respectively.
The value of equity compensation expense
not yet expensed pertaining to unvested equity compensation was $203,857 as of December 31, 2011, which will be recognized over
a weighted average 4 years in the future.
Common Stock warrants
2010
On March 26, 2010 the Company issued the
March 2010 Warrants to purchase in aggregate 5,535,000 shares of common stock at an exercise price of $0.20 per share for a period
of 5 years. The March 2010 Warrants also include full ratchet anti-dilution adjustment provisions for issuances of securities
below $0.20 per share of common stock during the first two years following the date of issuance of the March 2010 Warrants, subject
to customary exceptions.
F-
30
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
On March 31, 2010, the full ratchet anti-dilution
adjustment provisions pertaining to warrants issued on March 31, 2008, expired.
On September 30, 2010, pursuant to the
2010 Purchase Agreement the Company issued the September 2010 Warrants to purchase in aggregate 18,000,010 shares of common stock
at an exercise price of $0.15 per share for a period of five years. The September 2010 Warrants also include full ratchet anti-dilution
adjustment provisions for issuances of securities below $0.15 per share of common stock during the first two years following the
date of issuance of the September 2010 Warrants, subject to customary exceptions.
Also in connection with the 2010 Private
Placement, the Company agreed to amend the Prior Warrants as a condition of Co-Investment's consent to modify the terms
of the Series A Preferred Stock. Pursuant to addendums and certificates of adjustment to the 2009 Warrants and addendums and certificates
of adjustment to the 2010 March Warrants, the expiration dates of the anti-dilution provisions of the Prior Warrants were extended
to the expiration date of the anti-dilution provisions of the September 2010 Warrants. In addition, pursuant to the terms of the
Prior Warrants, the exercise price of the Prior Warrants was reduced from $0.20 to $0.15 and the aggregate number of shares of
Common Stock issuable under the 2009 Warrants was increased by 6,666,667 from 20,000,000 to 26,666,667 and the aggregate number
of shares of Common Stock issuable under the March 2010 Warrants was increased by 1,845,000 from 5,535,000 to 7,380,000.
On November 29, 2010, the Company completed
the Subsequent Closing and issued a warrant to purchase 2,000,000 shares of the Company's Common Stock a t an exercise price
of $0.15 per share for a period of five years to Independence Blue Cross (the "November 2010 Warrants"). The November
2010 Warrants also include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per share
of common stock during the first two years following the date of issuance of the September 2010 Warrants.
On December 22, 2010, the Company entered
into and completed the Note Conversion with Co-Investment and issued a warrant to purchase 7,973,780 shares of the Company's
Common Stock a t an exercise price of $0.15 per share for a period of five years (the "December 2010 Warrants"). The
December 2010 Warrants also include full ratchet anti-dilution adjustment provisions for issuances of securities below $0.15 per
share of common stock during the first two years following the date of issuance of the September 2010 Warrants.
During the year ended December 31, 2010,
warrants to purchase 350,000 shares of the Company's common stock at an exercise price of $2.80 per share and 75,000 shares
of the Company's common stock at an exercise price of $1.50 per share expired in accordance with the terms of the warrants.
2011
On January 10, 2011, warrants to purchase
1,175,000 shares of the Company's common stock at an exercise price of $1.50 per share expired in accordance with the terms
of the warrants.
F-
31
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
A summary of the status of the Company's
outstanding stock warrants as of and for the years ended December 31, 2011 and 2010 are as follows:
Weighted
Common
Average
Stock
Exercise
Warrants
Price
Outstanding at December 31, 2009
51,566,887
$
0.38
For the year ended December 31, 2010
Granted
33,508,790
0.16
Adjustment to warrants issued in 2009 for Preferred Stock and 2010 Warrants
6,666,667
0.15
Adjustment to warrants issued in 2010 for Preferred Stock and 2010 Warrants
1,845,000
0.15
Exercised
-
-
Expired
(425,000
)
2.57
Outstanding at December 31, 2010
93,162,344
0.25
For the year ended December 31, 2011
Granted
-
-
Exercised
-
-
Expired
(1,175,000
)
1.50
Outstanding at December 31, 2011
91,987,344
0.24
Exercisable at December 31, 2011
91,987,344
$
0.24
The following information applies to warrants
outstanding at December 31, 2011:
Warrant
Issue Date
Warrant
Exercise
Price
Warrant
Expiration
Date
Weighted
Average
Remaining
Life
Anti-dilution
Provision
Expiration
    Date
Outstanding
Common
Stock
Warrants
3/30/2007
$
1.51
3/30/2012
0.2
expired
4,966,887
3/31/2008
0.20
3/31/2013
1.2
expired
25,000,000
1/15/2009
0.15
1/14/2014
2.0
9/29/2012
26,666,667
3/26/2010
0.15
3/26/2015
3.2
9/29/2012
7,380,000
9/30/2010
0.15
9/30/2015
3.8
9/29/2012
18,000,010
11/29/2010
0.15
11/29/2015
3.9
9/29/2012
2,000,000
12/22/2010
0.15
12/22/2015
4.0
9/29/2012
7,973,780
91,987,344
Outstanding warrants at December 31, 2011,
have a weighted average remaining contractual life of 2.4 years.
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
F-
32
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
Upon the Company's adoption of EITF
No. 07-05 on January 1, 2009, the Company determined that the Company's warrants issued in 2007, 2008 and 2009
did not qualify for a scope exception under SFAS No. 133 as they were determined to not be indexed to the Company's
stock as prescribed by EITF No. 07-05.  On January 1, 2009, the Company's warrants issued in 2007, 2008 and 2009
were reclassified from equity to warrant liability for their relative fair market values. See Note 1 - Warrant Liability.
The Company determined the March 2010
Warrants, the September 2010 Warrants, the November 2010 Warrants and the December 2010 Warrants did not qualify for a scope exception
under SFAS No. 133 as they were determined not to be indexed to the Company's stock as prescribed by EITF No. 07-05.
See Note 1 - Warrant Liability.
Preferred Stock warrants
On August 18, 2010, the board of directors
of the Company granted a warrant to purchase 150,000 shares of Series A Preferred Stock at an exercise price equal to $4.00 per
share for a period of five years to Mr. Robert Oakes, who is InsPro LLC's President and CEO . The warrant is immediately
exercisable, non transferrable and expires on August 18, 2015. The Company estimated the fair value of the warrant to be $332,994
as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions: expected volatility 384%,
risk-free interest rate 0.19%, expected life in years 5, and assumed dividend yield 0%. The Company recorded the fair value of
the warrant as salaries, employee benefits and related taxes.
On September 14, 2011, the board of directors
of the Company granted a warrant to purchase 150,000 shares of Series A Preferred Stock at an exercise price equal to $4.00 per
share to Anthony R. Verdi, the Company's Chief Executive Officer and Chief Financial Officer. The warrant is immediately
exercisable, non transferrable and expires on September 14, 2016. The Company estimated the fair value of the warrant to be $180,000
as of the date of grant using the Black-Scholes option-pricing model based on the following assumptions: expected volatility:
566%, risk-free interest rate: 0.03%, expected life in years: 5, and assumed dividend yield: 0%. The Company recorded the fair
value of the warrant as salaries, employee benefits and related taxes.
A summary of the status of the Company's
outstanding preferred stock warrants as of and for the year ended December 31, 2011 are as follows:
Weighted
Preferred
Average
Stock
Exercise
Warrants
Price
Outstanding
                                                                                     at December 31, 2009
-
$
-
For
                                                                                     the year ended December 31, 2010
Granted
150,000
4.00
Exercised
-
-
Expired
-
-
Outstanding
                                                                                     at December 31, 2010
150,000
$
4.00
For
                                                                                     the year ended December 31, 2011
Granted
150,000
4.00
Exercised
-
-
Expired
-
-
Outstanding
                                                                                     at December 31, 2011
300,000
4.00
Exercisable
                                                                                     at December 31, 2011
300,000
$
4.00
Outstanding preferred stock warrants at December 31, 2011,
have a remaining contractual life of 4.2 years.
F-
33
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
Registration and Participation Rights
On March 30, 2007 and in connection with
2007 Private Placement, the Company and the participating investors entered into a Registration Rights Agreement (the "2007
Registration Rights Agreement"). Under the terms of the 2007 Registration Rights Agreement, the Company agreed to prepare
and file with the Commission, as soon as possible but in any event within 30 days following the later of (i) the date the Company
is required to file with the Commission its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, or (ii)
the date of the 2007 Registration Rights Agreement, a registration statement on Form SB-2 covering the resale of the shares and
the warrant shares. Subject to limited exceptions, the Company also agreed to use its reasonable best efforts to cause the registration
statement to be declared effective under the Securities Act as soon as practicable and agreed to use its reasonable best efforts
to keep the registration statement effective under the Securities Act until the date that is two years after the date that the
registration statement is declared effective by the Commission or such earlier date when all of the registrable securities covered
by the registration statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) promulgated under
the Securities Act. The 2007 Registration Rights Agreement also provides for payment of partial damages to the 2007 Private Placement
investors under certain circumstances relating to failure to file or obtain or maintain effectiveness of the registration statement,
subject to adjustment.
In connection with the 2007 Private Placement,
the Company issued warrants to the placement agents (the "Placement Agent Warrants"). Under the terms of the 2007
Registration Rights Agreement, the holders of the Placement Agent Warrants have certain "piggyback" registration rights
for the shares of Common Stock underlying the Placement Agent Warrants.
On June 1, 2007, the Commission declared
effective the Company's Registration Statement on Form SB-2 filed with the Commission on May 2, 2007, as amended.
In connection with the Bilenia Agreement,
the Company and CCCC entered into the Bilenia Registration Rights Agreement. In connection with the Atiam Merger Agreement, the
Company and Shareholders also entered into a Registration Rights Agreement. See Note 3 – InsPro Technologies Acquisition.
On April 22, 2008, the Commission declared
effective the Company's Registration Statement on Form SB-2 filed with the Commission on February 1, 2008 as amended.
In connection with the signing of the
2008 Purchase Agreement, the Company and the participating investors also entered into a Registration Rights Agreement (the "2008
Registration Rights Agreement"). Under the terms of the 2008 Registration Rights Agreement, the Company agreed to prepare
and file with the Commission, as soon as possible but in any event within 30 days following the later of (i) the date the Company
is required to file with the Commission its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007, or (ii)
the date of the Registration Rights Agreement, a registration statement on Form S-1 covering the resale of the shares and the
warrant shares. Subject to limited exceptions, the Company also agreed to use its reasonable best efforts to cause the registration
statement to be declared effective under the Securities Act as soon as practicable but, in any event, no later than 90 days following
the date of the 2008 Registration Rights Agreement (or 150 days following the date of the 2008 Registration Rights Agreement in
the event the registration statement is subject to review by the Commission), and agreed to use its reasonable best efforts to
keep the registration statement effective under the Securities Act until the date that all of the registrable securities covered
by the registration statement have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i)) promulgated
under the Securities Act. The 2008 Registration Rights Agreement also provides for payment of partial damages to the investors
under certain circumstances relating to failure to file or obtain or maintain effectiveness of the registration statement, subject
to adjustment.
F-
34
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
In connection with the signing of the
2009 Purchase Agreement, the Company and the Investor also entered into a Registration Rights Agreement (the "2009 Registration
Rights Agreement"). Under the terms of the 2009 Registration Rights Agreement, the Company agreed to prepare and file with
the Commission, within 30 days following the receipt of a demand notice of a holder of registrable securities, a registration
statement on Form S-1 covering the resale of the shares and the warrant shares. Subject to limited exceptions, the Company also
agreed to use its reasonable best efforts to cause the registration statement to be declared effective under the Securities Act,
as soon as practicable but, in any event, no later than 60 days following the date of the 2009 Registration Rights Agreement
(or 120 days following the date of the 2009 Registration Rights Agreement in the event the registration statement is subject
to review by the Commission), and agreed to use its reasonable best efforts to keep the registration statement effective under
the Securities Act until the date that all of the registrable securities covered by the registration statement have been sold
or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In addition, if the
Company proposes to register any of its securities under the Securities Act in connection with the offering of such securities
for cash, the Company shall, at such time, promptly give each holder of registrable securities notice of such intent, and such
holders shall have the option to register their registrable securities on such additional registration statement. The 2009 Registration
Rights Agreement also provides for payment of partial damages to the investor under certain circumstances relating to failure
to file or obtain or maintain effectiveness of the Registration Statement, subject to adjustment.
The 2009 Purchase Agreement provides for
a customary participation right for Co-Investment, subject to certain exceptions and limitations, which grants Co-Investment the
right to participate in any future capital raising financings of the Company occurring prior to January 14, 2011. Co-Investment
may participate in such financings at a level based on Co-Investment's ownership percentage of the Company on a fully-diluted
basis prior to such financing.
In connection with the signing of the
2010 Purchase Agreement, the Company and the participating investors also entered into a Registration Rights Agreement (the "2010
Registration Rights Agreement"). Under the terms of the 2010 Registration Rights Agreement, the Company agreed to prepare
and file with the Commission, within 30 days following the receipt of a demand notice of a holder of registrable securities,
a registration statement on Form S-1 covering the resale of the shares and the warrant shares. Subject to limited exceptions,
the Company also agreed to use its reasonable best efforts to cause the registration statement to be declared effective under
the Securities Act, as soon as practical but, in any event, no later than 60 days following the date of the 2010 Registration
Rights Agreement (or 120 days following the date of the 2010 Registration Rights Agreement in the event the registration
statement is subject to review by the Commission), and agreed to use its reasonable best efforts to keep the registration statement
effective under the Securities Act until the date that all of the registrable securities covered by the registration statement
have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In
addition, if the Company proposes to register any of its securities under the Securities Act in connection with the offering of
such securities for cash, the Company shall, at such time, promptly give each holder of registrable securities notice of such
intent, and such holders shall have the option to register their registrable securities on such additional registration statement.
The 2010 Registration Rights Agreement also provides for the cash payment of partial damages to the investors under certain circumstances
relating to failure to file or obtain or maintain effectiveness of the registration statement, subject to adjustment. As of December
31, 2010 the Company has not received a demand notice in connection with the 2010 Registration Rights Agreement.
The 2010 Purchase Agreement provides for
a customary participation right for the investors, subject to certain exceptions and limitations, which grants the investors the
right to participate in any future capital raising financings of the Company occurring prior to September 30, 2012. The investors
may participate in such financings at a level based on each investor's ownership percentage of the Company on a fully-diluted
basis prior to such financing.
F-
35
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 8 –
SHAREHOLDERS'
EQUITY (continued)
In connection with the signing of the
Conversion Agreement, the Company and Co-Investment also entered into a Registration Rights Agreement (the "December 2010
Registration Rights Agreement"). Under the terms of the December 2010 Registration Rights Agreement, the Company agreed
to prepare and file with the Commission, within 30 days following the receipt of a demand notice of a holder of registrable
securities, a registration statement covering the resale of registrable securities. Subject to limited exceptions, the Company
also agreed to use its reasonable best efforts to cause the registration statement to be declared effective under Securities Act
as soon as practicable but, in any event, no later than 60 days following the date of the filing of the registration statement
(or 120 days following the date of the filing of the registration statement in the event the registration statement is subject
to review by the Commission), and agreed to use its reasonable best efforts to keep the registration statement effective under
the Securities Act until the date that all of the registrable securities covered by the registration statement have been sold
or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated under the Securities Act. In addition, if the
Company proposes to register any of its securities under the Securities Act in connection with the offering of such securities
for cash, the Company shall, at such time, promptly give each holder of registrable securities notice of such intent, and such
holders shall have the option to register their registrable securities on such additional registration statement. The December
2010 Registration Rights Agreement also provides for payment of partial damages to Co-Investment under certain circumstances relating
to failure to file or obtain or maintain effectiveness of the registration statement, subject to adjustment.
The Conversion Agreement also provides
for a customary participation right for Co-Investment, subject to certain exceptions and limitations, which grants Co-Investment
the right to participate in any future capital raising financings of the Company occurring prior to September 30, 2012. Co-Investment
may participate in such financings at a level based on Co-Investment's ownership percentage of the Company on a fully-diluted
basis prior to such financing.
NOTE 9 –
CAPITAL LEASE OBLIGATIONS
The Company's InsPro LLC subsidiary
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 the 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 December 31, 2011 and 2010:
Useful Life (Years)
December 31, 2011
December 31, 2010
Computer equipment and software
3
$
654,690
595,898
Phone System
3
15,011
15,011
669,701
610,909
Less accumulated depreciation
(555,141
)
(413,837
)
$
114,560
$
197,072
F-
36
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 9 –
CAPITAL LEASE OBLIGATIONS (continued)
Future minimum payments required under capital leases at December
31, 2011 are as follows:
2012
$
119,229
2013
58,818
2014
50,372
2015
12,815
Total
                                                             future payments
241,234
Less
                                                             amount representing interest
17,419
Present
                                                             value of future minimum payments
223,815
Less
                                                             current portion
109,872
Long-term
                                                             portion
$
113,943
NOTE 10 –
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. The 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 contribution (the "Contribution").
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 $46,403 and $40,696 for the years ended December 31, 2011 and 2010.
NOTE 11 –
RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES
Employment and Separation Agreements
On March 31, 2008, Anthony R. Verdi, our
Chief Financial Officer, was also appointed to the position of Chief Operating Officer, effective April 8, 2008. Mr. Verdi shall
have the authority, as our Chief Operating Officer, to lead the Company as the principal executive officer in the absence of a
Chief Executive Officer and Mr. Verdi shall have such authority until we appoint a new Chief Executive Officer or until such time
as our board of directors determines otherwise. Mr. Verdi was appointed to the board on June 20, 2008, and was appointed our Principal
Executive Officer on May 18, 2011.
Mr. Verdi's amended and restated
employment agreement, as amended on March 31, 2008, provides for an initial term of one year with automatic successive one-year
renewals unless we or Mr. Verdi gives the other party 60 days' written notice prior to the end of the then current term.
He is entitled to receive such employee benefits and bonus compensation as a majority of our board of directors may determine
from time to time. Mr. Verdi's base salary is $250,000 per year.
F-
37
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 11 –
RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES (continued)
If we terminate Mr. Verdi's employment
for cause or Mr. Verdi terminates his employment agreement without good reason, Mr. Verdi will be entitled to receive (i) all
accrued and unpaid salary and vacation pay through the date of termination and (ii) continued participation for one month in our
benefit plans. Otherwise if we terminate Mr. Verdi's employment or Mr. Verdi terminates his employment agreement for good
reason including his permanent disability he will be entitled to receive 18 months' base salary at the then current rate,
payable in accordance with our usual practices, continued participation for 18 months in our benefit plans and payment, within
a commercially reasonable time and on a prorated basis, of any bonus or other payments earned in connection with our bonus plan
existing at the time of termination. In addition, if Mr. Verdi's employment is terminated in accordance with the foregoing
sentence within two months prior to, or 24 months following, a change in control (as described in the employment agreement), Mr.
Verdi will be entitled to receive 18 months' base salary at the then current rate upon the date of termination, regardless
of our usual practices, and all stock options held by Mr. Verdi at the date of termination will immediately become 100% vested
and all restrictions on such options will lapse.
If Mr. Verdi's employment is terminated
due to a permanent disability we may credit any such amounts against any proceeds paid to Mr. Verdi with respect to any disability
policy maintained and paid for by us for Mr. Verdi's benefit. If Mr. Verdi dies during the term of his employment agreement,
the employment agreement will automatically terminate and Mr. Verdi's estate or beneficiaries will be entitled to receive
(i) three months' base salary at the then current rate, payable in a lump sum and (ii) continued participation for one year
in our benefit plans.
In connection with the InsPro LLC acquisition,
InsPro LLC entered into three-year employment agreement with Mr. Oakes, effective October 1, 2007. On July 9, 2010, the Company
and Mr. Oakes entered into an amended and restated written employment agreement. Pursuant to Mr. Oakes employment agreement, his
annual base salary is $250,000 per year through September 30, 2011. Pursuant to his employment agreement on April 7, 2011, Mr.
Oakes received an increase in his base compensation to $300,000 retroactive to July 1, 2010, upon InsPro Technologies, LLC achievement
of one calendar quarter of positive operating cash flow, which occurred during the calendar quarter ended March 31, 2011. Mr.
Oakes is entitled to bonus compensation equal to 100% of the InsPro LLC's net income up to a maximum of $100,000 in 2010
and $100,000 in 2011. Mr. Oakes is entitled to such fringe benefits as are available to other executives of InsPro Technologies
Corporation. Mr. Oakes employment agreement shall be automatically extended for an additional one year term on March 25, 2011
and annually thereafter unless either party provides written notification to the other party of non-renewal no later than 60 days
prior to the termination date of the agreement.
In the event of Mr. Oakes's termination
without cause or for good reason, he or his estate would receive his then current base annual salary, plus unpaid accrued employee
benefits, which is primarily accrued vacation, plus the continuation of his employee benefits for a period of 12 months, less
all applicable taxes. In the event of his voluntary termination, death or disability, he or his estate would receive unpaid accrued
employee benefits, plus the continuation of his employee benefits for a period of one month, less all applicable taxes.
Pursuant to a written employment agreement
effective June 20, 2011, Mr. Michael Mullin serves as our Chief Operating Officer of InsPro LLC. Pursuant to his employment
agreement his annual base salary is $220,000 per year through June 20, 2012. Mr. Mullin is entitled to bonus compensation equal
to 100% of the InsPro LLC's positive cash flow up to a maximum of $12,500 per calendar quarter. He is entitled to receive
such employee benefits and bonus compensation as provided to executives of the Company. Mr. Mullin's employment agreement
may be terminated upon 60 days written notice and will otherwise automatically renew on June 20, 2012, for a one year term.
F-
38
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 11 –
RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES (continued)
The Company may terminate Mr. Mullin's
employment agreement without cause at any time with 30 days prior written notice. In the event of Mr. Mullin's termination
without cause or for good reason, he or his estate would receive his then current base annual salary for a period of six months,
plus unpaid accrued employee benefits, which is primarily accrued vacation, less all applicable taxes. In the event of his voluntary
termination, death or disability, he or his estate would receive unpaid accrued employee benefits, less all applicable taxes.
During 2011 the Company renewed the employment
agreements with four executives each for a one year term. These employment agreements provide that these four key employees will
be compensated at an aggregate annual base salary of $701,000 with bonus compensation at the discretion of the Company's
board. These agreements may be terminated by the Company for "cause" (as such term is defined in the agreements) and
without "cause" upon 30 days notice. These agreements may be terminated by the Company without "cause",
in which case the terminated employee will be entitled to their base salary for a period of six months. These agreements also
contain non-competition and non-solicitation provisions for the duration of the agreements plus a period of six months after termination
of employment.
Restricted Cash and Operating Leases
On February 17, 2006, the Company entered
into a lease agreement with FG2200, LLC, a Florida limited liability company, for approximately 50,000 square feet of office space
at 2200 S.W. 10th Street, Deerfield Beach, Florida (the "Lease"). The Company utilized this office as the principal
office for its former Agency Business. The term of the Lease commenced on March 15, 2006 and terminates on February 28, 2011.
On June 11, 2010, the Company exercised its one time option to cancel the Lease effective March 14, 2011, and paid $783,849 to
FG2200, LLC on June 14, 2010. The monthly rent increased every 12 months, starting at $62,500 plus certain building expenses incurred
by the landlord and ending at approximately $ 70,344 plus certain building expenses incurred by the landlord. In connection with
the Lease, the Company provided a $1,000,000 letter of credit to the landlord as a security deposit for the Company's obligations
under the Lease.
On January 4, 2011, the Company and FG2200,
LLC, agreed to amend the Lease whereby the Company paid to FG2200, LLC $16,300 as consideration to shorten the expiration of the
Lease to February 28, 2011, and to amend the security deposit provisions of the Lease. The amendment amended the security deposit
whereby the Company's existing $1,000,000 letter of credit, which served as the security deposit for the Lease, expired
on January 14, 2011, and was replaced by a $160,300 cash payment from the Company to FG2200, LLC, which consisted of $16,300 consideration
for amending the Lease and a $150,000 security deposit. The security deposit was returned to the Company by FG2200, LLC in 2011.
On March 7, 2006, the Company entered
into a sublease for approximately 13,773 square feet of office space located on the 7th floor at 1120 Avenue of the Americas,
New York, New York ("Sublease Agreement"). The Company utilized this office as a sales office for its former Agency
Business. The Sublease Agreement commenced on March 2006, and terminated on December 31, 2010. The monthly rent increased every
twelve months, starting at approximately $303,000 per annum plus a proportionate share of landlord's building expenses and
ended at approximately $341,000 per annum plus a proportionate share of landlord's building expenses. In connection with
the Sublease Agreement, the Company provided a $151,503 letter of credit to the landlord as a security deposit for the Company's
obligations under the sublease.
All amounts pertaining to the Company's
former Florida and New York offices are included in discontinued operations.
F-
39
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 11 –
RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES (continued)
On July 7, 2006, the Company entered into
a lease agreement with Radnor Properties-SDC, L.P. (the "Landlord") for the lease of 7,414 square feet of office space
located in Radnor Financial Center, Building B, 150 Radnor-Chester Road, Radnor, Pennsylvania. The term of the lease commenced
on November 1, 2006, which was the date the Company, with the Landlord's prior consent, assumed possession of the premises
and the date the Landlord tendered possession of the premises to the Company following the substantial completion of the improvements
required to be made by the Landlord under the lease agreement, and will expire on the last day of the 125
th
month following the commencement of the lease term. The annual rent increases every 12 months, starting at approximately
$161,592 plus a proportionate share of landlord's building expenses after the second month and ending at approximately $258,378
plus a proportionate share of landlord's building expenses. Under the terms of the lease agreement, rent is 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 the amount of $117,145 as of December 31, 2011.
The Company paid to the Landlord a security
deposit of $110,000 under the lease (the "Security Deposit") during the third quarter of 2006, which is accounted
for as a deposit in other assets. The Company will not earn interest on the Security Deposit. The Security Deposit will decrease
and the Landlord will return to the Company $10,000 on the third anniversary of the commencement date of the lease and on each
anniversary thereafter until the required Security Deposit has been reduced to $20,000. The Security Deposit will be returned
to the Company 30 days after the end of the lease provided the Company has complied with all provisions of the lease. The balance
of the Security Deposit is $80,000 as of December 31, 2011.
The letters of credit pertaining to the
lease for our Florida office and our former New York office were collateralized in the form of interest bearing bank deposits.
These interest bearing bank deposits were on deposit with the issuer of the letters of credit and were classified as restricted
cash on the Company's balance sheet, which as of December 31, 2010 had balances of $1,152,573. The terms of the interest
bearing bank accounts prohibited the Company from withdrawing the principal for the life of the letters of credit. On January
14, 2011, the Company's $1,000,000 letter of credit was terminated by the issuing Bank at the request of the Company and
the restrictions on the restricted cash, which served as collateral and was included in restricted cash, were eliminated on that
date. On February 5, 2011, the Company's $151,503 letter of credit was terminated by the issuing Bank at the request of
the Company and the restrictions on the restricted cash, which served as collateral and was included in restricted cash, were
eliminated on that date.
On September 14, 2007, InsPro LLC entered
into a lease agreement with BPG Officer VI Baldwin Tower L.P. ("BPG") for approximately 5,524 square feet of office
space at Baldwin Towers in Eddystone, Pennsylvania. On March 26, 2008, and again on December 2, 2008, the Company and BPG agreed
to amend the lease to increase the leased office space by 1,301 and 6,810 square feet, respectively. The term of the lease commenced
on October 1, 2007 will expire on January 31, 2013. The annual rent increases every 12 months, starting at approximately
$102,194 plus a proportionate share of landlord's building expenses and ending at approximately $286,335 plus a proportionate
share of landlord's building expenses. Under the terms of the lease agreement, rent was waived for the first, second, tenth
and twenty-fifth months of the lease term. The Company recorded a liability for deferred rent in the amount of $13,450 as of December
31, 2011.
The Company leases certain real and personal
property under non-cancelable operating leases. Rent expense was $660,429 and $713,440 for the years ended December 31, 2011 and
2010, respectively.
F-
40
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 11 –
RESTRICTED CASH, COMMITMENTS
AND CONTINGENCIES (continued)
Future minimum payments required under
operating leases, severance and employment agreements and service agreements at December 31, 2011 are as follows:
2012
661,086
2013
277,203
2014
255,843
2015
257,451
2016
261,156
thereafter
65,521
Total
$
1,778,260
NOTE 12 -
INCOME TAXES
The Company has net operating loss carry
forwards for federal income tax purposes of approximately $37,600,000 at December 31, 2011, the unused portion of which, if any,
expires in years 2025 through 2031. 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% change in ownership). The issuance of the Company's Series A convertible preferred stock on January 15, 2009
resulted in a change of control as defined under IRC 382.
The table below summarizes the differences
between the Company's effective tax rate and the statutory federal rate as follows for the periods ended December 31, 2011
and 2010:
2011
2010
Computed "expected" expense (benefit)
$
171,168
$
(874,346
)
State tax expense (benefit), net of federal effect
14,672
(74,944
)
Amortization/impairment of acquisition related assets
41,257
182,924
Stock based compensation
104,235
145,739
Gain on change in fair value of warrants
(895,323
)
(431,903
)
Other permanent differences
13,407
6,140
Increase in valuation allowance
550,584
1,046,390
$
-
$
-
F-
41
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011
NOTE 12 -
INCOME TAXES (continued)
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 years ended December 31, 2011 and 2010 were as follows:
2011
2010
Deferred tax assets:
Net operating loss carry forward
$
14,288,302
$
13,727,271
Compensation expense
23,569
29,142
All Miscellaneous Other
45,464
98,633
Total deferred tax asset
14,357,335
13,855,046
Deferred tax liabilities:
Depreciation
(19,854
)
(68,149
)
Net deferred tax asset
14,337,481
13,786,897
Less: valuation allowance
(14,337,481
)
(13,786,897
)
$
-
$
-
The Company believes they will be able
to utilize deferred tax assets equal to the total deferred tax liabilities. 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 was increased by $550,584 from the prior year.
NOTE 13 –
SUBSEQUENT EVENTS
Management has evaluated the effects of
all events subsequent to December 31, 2011 through the date which the financial statements were available to be issued and has
concluded that all events requiring adjustment to or disclosure in the financial statements have been made.
Expiration of Warrants
On March 30, 2012, warrants to purchase
4,966,887 shares of the Company's Common Stock at an exercise price of $1.51 per share expired in accordance with the terms
of the warrants.
F-
42
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2012
December 31, 2011
(Unaudited)
(1)
ASSETS
CURRENT ASSETS:
Cash
$
2,091,032
$
3,702,053
Accounts receivable, net
2,444,375
1,506,234
Tax receivable
766
766
Prepaid expenses
285,143
116,649
Other current assets
396
2,139
Assets of discontinued operations
87,817
104,002
Total current assets
4,909,529
5,431,843
Property and equipment, net
1,501,835
496,692
Intangibles, net
-
260,050
Other assets
80,608
80,608
Total assets
$
6,491,972
$
6,269,193
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable
$
66,686
$
8,586
Accounts payable
1,906,096
644,563
Accrued expenses
712,777
521,383
Current portion of capital lease obligations
74,319
109,872
Deferred revenue
1,672,039
622,500
Total current liabilities
4,431,917
1,906,904
LONG TERM LIABILITIES:
Warrant liability
-
1,674,226
Capital lease obligations
95,776
113,943
Total long term liabilities
95,776
1,788,169
SHAREHOLDERS' EQUITY:
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; 5,000,000 shares
    authorized, 2,797,379 shares issued and outstanding (liquidation value $8,392,137)
5,427,604
5,427,604
Common stock ($.001 par value; 300,000,000 shares
    authorized, 41,543,655 shares issued and outstanding)
41,544
41,543
Additional paid-in capital
43,293,255
37,038,318
Accumulated deficit
(49,662,228
)
(42,797,449
)
Total shareholders' equity
1,964,279
2,574,120
Total liabilities and shareholders' equity
$
6,491,972
$
6,269,193
(1) Derived from audited financial statements.
See accompanying notes to unaudited consolidated
financial statements.
F-
43
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three
    Months Ended September 30,
For the Nine
    Months Ended September 30,
2012
2011
2012
2011
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Revenues
$
3,372,990
$
1,699,802
$
8,835,150
$
5,636,023
Cost of revenues
3,237,929
1,587,656
7,844,648
5,035,330
Gross profit
135,061
112,146
990,502
600,693
Selling, general and administrative expenses:
Salaries, employee benefits and related taxes
580,579
765,496
1,735,783
2,053,281
Advertising and other marketing
84,802
27,199
145,119
81,243
Depreciation and amortization
255,316
166,521
717,072
521,309
Rent, utilities, telephone and communications
99,652
93,526
281,353
282,363
Professional fees
176,905
99,199
385,407
307,856
Other general and administrative
178,323
141,432
425,264
419,575
1,375,577
1,293,373
3,689,998
3,665,627
Loss from operations
(1,240,516
)
(1,181,227
)
(2,699,496
)
(3,064,934
)
Gain from discontinued operations
138,818
198,529
409,094
638,034
Other income (expense):
Gain (loss) on the change of the fair value of
    warrant liability
-
103
(4,508,078
)
929,671
Interest income
419
5,087
4,008
19,483
Interest expense
(53,300
)
(5,301
)
(70,307
)
(18,802
)
Total other income (expense)
(52,881
)
(111
)
(4,574,377
)
930,352
Net loss
$
(1,154,579
)
$
(982,809
)
$
(6,864,779
)
$
(1,496,548
)
Net income (loss) per common share - basic and diluted:
Income (loss) from operations
$
(0.03
)
$
(0.03
)
$
(0.18
)
$
(0.06
)
Gain from discontinued operations
0.00
0.01
0.01
0.02
Net income (loss) per
    common share
$
(0.03
)
$
(0.02
)
$
(0.17
)
$
(0.04
)
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.
F-
44
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30
2012
2011
(Unaudited)
(Unaudited)
Cash Flows From Operating Activities:
Net loss
$
(6,864,779
)
$
(1,496,548
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
717,072
521,309
Stock-based compensation
72,632
250,354
(Gain) loss on change of fair value of warrant liability
4,508,078
(929,671
)
Changes in assets and liabilities:
Accounts receivable
(938,141
)
(261,290
)
Tax receivable
-
2,840
Prepaid expenses
(168,494
)
(10,518
)
Other current assets
1,743
(151
)
Other assets
-
1,950
Accounts payable
738,392
(348,106
)
Accrued expenses
191,394
118,309
Deferred revenue
1,049,539
531,537
Assets of discontinued operations
16,185
(84,197
)
Net cash used in operating activities
(676,379
)
(1,704,182
)
Cash Flows From Investing Activities:
Purchase of property and equipment
(939,022
)
(98,235
)
Net cash used in investing activities
(939,022
)
(98,235
)
Cash Flows From Financing Activities:
Gross proceeds from note payable
118,206
37,540
Payments on note payable
(60,106
)
(33,650
)
Fees paid in connection with secured note from related party
-
(8,370
)
Gross proceeds from capital leases
27,442
-
Payments on capital leases
(81,162
)
(117,535
)
Restricted cash in connection with letters of credit
-
1,152,573
Net cash provided by financing activities
4,380
1,030,558
Net (decrease) in cash
(1,611,021
)
(771,859
)
Cash - beginning of the period
3,702,053
4,429,026
Cash - end of the period
$
2,091,032
$
3,657,167
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
$
21,604
$
18,802
Non cash financing activities:
Accrued Interest on acounts payable
$
48,703
$
-
See accompanying notes to unaudited consolidated
financial statements.
F-
45
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
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, 2011 and notes thereto and other pertinent
information contained in the Annual Report on Form 10-K of InsPro Technologies Corporation (the "Company", "we",
"us" or "our") as filed with the Securities and Exchange Commission (the "Commission").
The consolidated financial statements
of the Company include the Company and its subsidiaries. All material inter-company balances and transactions have been eliminated.
For purposes of comparability
,
certain prior period amounts have been reclassified to conform to the 2012 presentation.
The results of operations for the nine
months ended September 30, 2012 are not necessarily indicative of the results for the full fiscal year ending December 31, 2012.
Organization
InsPro Technologies, LLC, our wholly owned
subsidiary ("InsPro Technologies"), is a provider of comprehensive, web-based insurance administration software applications.
InsPro Technologies' flagship software product is InsPro Enterprise, which was introduced in 2004.
InsPro
Technologies offers InsPro Enterprise on 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. InsPro Technologies realizes revenue from the sale of software licenses, application service provider
fees, software maintenance fees and professional services.
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 2012 and 2011 include the allowance for
doubtful accounts, stock-based compensation, the useful lives of property and equipment and intangible assets, warrant liability
and revenue recognition.
Cash and cash equivalents
The Company considers all liquid debt
instruments with original maturities of three months or less to be cash equivalents.
F-
46
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 1 –
BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts receivable
The Company has a policy of establishing
an allowance for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an
analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account
balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. At September 30, 2012 and December 31, 2011, the Company has established, based on a review
of its outstanding balances, an allowance for doubtful accounts in the amount of $0. The Company had no write-offs of accounts
receivable during the nine months ended September 30, 2012 and 2011.
Accounts receivable from the two largest
InsPro Technologies clients accounted for 36% and 19%, respectively, of the Company's total accounts receivable balance
at September 30, 2012.
Fair value of financial instruments
The carrying amounts of financial instruments,
including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and capital leases
approximated fair value as of September 30, 2012 and December 31, 2011, because of the relatively short-term maturity of these
instruments and their market interest rates.
Effective January 1, 2008, the Company
adopted Financial Accounting Standards Board (the "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. The
adoption of ASC 820 did not have an impact on the Company's financial position or operating results, but did expand certain
disclosures.
ASC 820 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1:
Observable inputs such as quoted market prices in active markets for identical
    assets or liabilities.
Level 2:
Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3:
Unobservable inputs for which there is little or no market data, which require the use of
    the reporting entity's own assumptions.
The Company measured its warrant liability
using Level 3 inputs as defined by ASC 820.
F-
47
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and equipment
Property and equipment are carried at
cost. The cost of repairs and maintenance are 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 FASB 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.
Intangible assets
Intangible assets consist of assets acquired
in connection with the acquisition of InsPro Technologies and costs incurred in connection with the development of the Company's
software. See Note 4 – Intangible 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.
Warrant liability
Effective September 30, 2012, the full
ratchet anti-dilution provisions pertaining to warrants issued during 2009 and 2010 expired. Consequently, the Company has determined
that effective September 30, 2012, all of the Company's issued and outstanding warrants qualify for a scope exception under
ASC 815-40-15 as they are indexed to the Company's stock. Effective September 30, 2012, the Company recorded the elimination
of the warrant liability by recording a debit to warrant liability in the amount of $6,182,309 and a credit to additional paid
in capital in the amount of $6,182,309. See Note 5 Shareholders' Equity – Common Stock Warrants. For the nine months
ended September 30, 2012, the Company recorded a loss on the change in fair value of derivative liability of $4,508,078 to mark-to-market
for the increase in fair value of the warrants.
F-
48
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company accounts for income taxes
under the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
Earnings (loss) per common share
Basic earnings (loss) per share is computed
by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during the period. Diluted loss per common share is not presented because it is
anti-dilutive. The Company's common stock equivalents at September 30, 2012, include the following:
Series A convertible preferred stock issued and outstanding
25,535,000
Series B convertible preferred stock issued and outstanding
55,947,580
Options, issued, outstanding and exercisable
4,885,000
Warrants to purchase common stock, issued, outstanding and exercisable
87,020,457
Warrants to purchase series A convertible preferred stock, issued, outstanding and exercisable
6,000,000
179,388,037
Revenue recognition
InsPro Technologies offers InsPro Enterprise
software on a licensed and an ASP basis. An InsPro Enterprise license entitles the purchaser a perpetual license to a copy of
the InsPro Enterprise installed at a single client location.
Alternatively, ASP hosting service enables
a client to lease InsPro Enterprise, paying only for that capacity required to support their business. ASP clients access InsPro
Enterprise installed on InsPro Technologies' owned servers located at InsPro Technologies' office or at a third party's
site.
InsPro Technologies' software maintenance
fees apply to both licensed and ASP clients. Maintenance fees cover periodic updates to the application and the InsPro Enterprise
help desk.
InsPro Technologies' consulting
and implementation services are generally associated with the implementation of an 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 document design and system documentation.
F-
49
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
InsPro Technologies' revenue is
generally recognized under ASC 985-605. For software arrangements involving multiple elements, 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 collectibility 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 collectibility 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 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.
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 design, development, implementation,
testing together with customer management, training and technical support, as well as facilities, equipment and software costs.
Advertising and other marketing
Advertising and other marketing costs
are expensed as incurred.
F-
50
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations of credit risk
The Company maintains its cash in bank
deposit accounts, which exceed the federally insured limits as provided through the Federal Deposit Insurance Corporation ("FDIC").
In 2010 the FDIC insurance coverage limit was permanently increased to $250,000 per depositor, per institution as a result of
the Dodd-Frank Wall Street and Consumer Protection Act. Beginning December 31, 2010, the FDIC has implemented a new temporary
insurance category to provide unlimited FDIC insurance coverage for funds held in noninterest-bearing transaction accounts at
insured banks. This temporary category will remain in effect through December 31, 2012.
At September 30, 2012, the Company had
$2,091,032 of cash in United States bank deposits, of which $2,091,032 was federally insured.
The following table lists the percentage
of the Company's revenue, which was earned from the Company's two largest InsPro Enterprise clients.
For the Nine Months ended September 30,
2012
2011
Largest InsPro client
36
%
28
%
Second largest InsPro client
12
%
11
%
Stock-based compensation
The Company accounts for stock based compensation
transactions using a fair-value-based method and recognizes compensation cost for share-based payments to employees based on their
grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied.
Registration rights agreements
The Company classifies as liability instruments
the fair value of registration rights agreements when such agreements (i) require it to file, and cause to be declared effective
under the Securities Act of 1933, as amended, a registration statement with the Commission within contractually fixed time periods,
and (ii) provide for the payment of liquidating damages in the event of its failure to comply with such agreements and such failure
is probable. Registration rights with these characteristics are accounted for as derivative financial instruments at fair value
and contracts that are (a) indexed to and potentially settled in an issuer's own stock and (b) permit gross physical or net share
settlement with no net cash settlement alternative are classified as equity instruments.
At September 30, 2012, the Company does
not believe that it is probable that the Company will incur a penalty in connection with the Company's registration rights
agreements. Accordingly no liability was recorded as of September 30, 2012.
F-
51
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting pronouncements
Various
accounting
standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption.
NOTE 2 –
DISCONTINUED OPERATIONS
The Company
has classified its former t
elesales call center and external (ISG) agent produced agency business (the "Agency Business"),
its former Insurint business and its leased offices located in New York and Florida as discontinued operations.
The financial position of discontinued
operations was as follows:
September 30, 2012
December 31, 2011
Accounts receivable, less allowance for doubtful accounts $0
$
84,817
$
49,779
Other current assets
3,000
54,223
Net current assets of discontinued operations
$
87,817
$
104,002
The results of discontinued operations were as follows:
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2012
2011
2012
2011
Revenues:
Commission and other revenue from carriers
$
14,135
$
34,310
$
64,001
$
145,278
Transition policy commission pursuant to the Agreement
131,579
176,028
374,790
564,697
Sub-lease revenue
-
-
-
150,100
145,714
210,338
438,791
860,075
Operating expenses:
Salaries, employee benefits and related taxes
-
-
-
11,118
Rent, utilities, telephone and communications
-
-
-
171,510
Professional fees
-
-
-
(1,961
)
Other general and administrative
6,896
11,809
29,697
41,374
6,896
11,809
29,697
222,041
Gain from discontinued operations
$
138,818
$
198,529
$
409,094
$
638,034
F-
52
NOTE 3 -
PROPERTY AND EQUIPMENT
Property and equipment consisted of the
following:
Useful
Life
(Years)
At September 30, 2012
At December 31, 2011
Computer equipment and software
3
$
2,730,282
$
1,354,525
Office equipment
4.6
230,266
204,442
Office furniture and fixtures
6.7
189,857
189,857
Leasehold improvements
5.4
94,620
34,034
3,245,025
1,782,858
Less accumulated depreciation
(1,743,189
)
(1,286,166
)
$
1,501,836
$
496,692
For the three
months ended September 30, 2012 and 2011, depreciation expense was $168,632 and $79,837, respectively. For the nine months ended
September 30, 2012 and 2011, depreciation expense was $457,021 and $261,257, respectively. For the nine months ended September
30, 2012, depreciation expense includes $41,896 of additional, accelerated depreciation expense as a result of InsPro Technologies'
abandonment of certain furniture and equipment in the second quarter of 2012, which occurred as a result of InsPro Technologies
move to newly furnished office space in Baldwin Towers.
See Note 8 – Operating Leases and future commitments.
NOTE 4 –
INTANGIBLE ASSETS
Intangible assets consisted of the following:
Useful
Life
(Years)
At September 30, 2012
At December 31, 2011
InsPro Technologies intangible assets acquired
4.7
$
2,097,672
$
2,097,672
Software development costs for external marketing
2
174,296
174,296
2,271,968
2,271,968
Less: accumulated amortization
(2,271,968
)
(2,011,918
)
$
-
$
260,050
For the three months ended September 30,
2012 and 2011, amortization expense was $86,683 and $86,684, respectively. For the nine months ended September 30, 2012 and 2011,
amortization expense was $260,050 and $260,052, respectively.
F-
53
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 5 –
SHAREHOLDERS'
EQUITY
Stock options
On May 20,
2012, 250,000 options, which were previously granted to
an outside consultant,
expired in accordance
with the terms of the stock options. On August 4, 2012, 250,000 options, which were previously granted to the former vice chairman
of the Company's board of directors, expired in accordance with the terms of the stock options.
The Company recorded compensation expense
pertaining to employee stock options in salaries, commission and related taxes of $72,632 and $70,354 for the nine months ended
September 30, 2012 and 2011, respectively.
The value of equity compensation expense
not yet expensed pertaining to unvested equity compensation was $131,225 as of September 30, 2012, which will be recognized over
a weighted average 3.3 years in the future.
The total
intrinsic value of stock options outstanding and exercisable as of September 30, 2012 was $21,345.
A summary of the Company's outstanding
stock options as of and for the three months ended September 30, 2012 are as follows:
Number
Weighted
Of Shares
Average
Weighted
Underlying
Exercise
Average
Options
Price
Fair Value
Outstanding at December 31, 2011
6,835,000
$
0.47
$
0.32
For the period ended September 30, 2012
Granted
-
-
-
Exercised
-
-
-
Expired
(500,000
)
0.10
0.10
Outstanding at September 30, 2012
6,335,000
$
0.47
$
0.33
Outstanding and exercisable at September 30, 2012
4,885,000
$
0.57
$
0.40
F-
54
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 5 –
SHAREHOLDERS'
EQUITY (continued)
The following information applies to options
outstanding at September 30, 2012:
Options Outstanding
Options Exercisable
Exercise
Price
Number
    of
Shares
Underlying
Options
Weighted
Average
Remaining
Contractual
Life
Exercise
Price
Number
Exercisable
Exercise
Price
$
0.060
405,000
2.4
$
0.060
405,000
$
0.060
0.065
500,000
3.0
0.065
400,000
0.065
0.100
2,705,000
1.6
0.100
2,105,000
0.100
0.111
1,500,000
3.1
0.111
750,000
0.111
1.000
750,000
3.4
1.000
750,000
1.000
3.500
75,000
3.8
3.500
75,000
3.500
$
3.600
400,000
3.8
$
3.600
400,000
$
3.600
6,335,000
4,885,000
As of September 30, 2012, there were 30,000,000
shares of our common stock authorized to be issued under the Company's 2010 Equity Compensation Plan, of which 22,661,980
shares of our common stock remain available for future stock option grants.
Common stock warrants
On March 30, 2012, warrants to purchase
4,966,887 shares of the Company's common stock at an exercise price of $1.51 per share expired in accordance with the terms
of the warrants.
On September 30, 2012, t
he
full ratchet anti-dilution adjustment provisions pertaining to warrants issued on January 15, 2009 and during 2010 expired
in accordance with the terms of the warrants
.
F-
55
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 5 –
SHAREHOLDERS'
EQUITY (continued)
A summary of the status of the Company's
outstanding common stock warrants as of and for the three months ended September 30, 2012 are as follows:
Weighted
Common
Average
Stock
Exercise
Warrants
Price
Outstanding and exercisable at December 31, 2011
91,987,344
0.24
For the period ended September 30, 2012
Granted
-
-
Exercised
-
-
Expired
(4,966,887
)
1.51
Outstanding and exercisable at September 30, 2012
87,020,457
0.17
The following information applies to common
stock warrants outstanding at September 30, 2012:
Warrant
Issue Date
Warrant
Exercise
Price
Warrant
Expiration
Date
Weighted
Average
Remaining
Life
Anti-dilution
Provision
Expiration
Date
Outstanding
Common
Stock
Warrants
3/31/2008
0.20
3/31/2013
0.5
expired
25,000,000
1/15/2009
0.15
1/14/2014
1.3
9/30/2012
26,666,667
3/26/2010
0.15
3/26/2015
2.5
9/30/2012
7,380,000
9/30/2010
0.15
9/30/2015
3.0
9/30/2012
18,000,010
11/29/2010
0.15
11/29/2015
3.2
9/30/2012
2,000,000
12/22/2010
0.15
12/22/2015
3.2
9/30/2012
7,973,780
87,020,457
F-
56
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 5 –
SHAREHOLDERS'
EQUITY DEFICIT) (continued)
Preferred stock warrants
A summary of the status of the Company's
outstanding Series A preferred stock warrants as of and for the period ended September 30, 2012 are as follows:
Weighted
Preferred
Average
Stock
Exercise
Warrants
Price
Outstanding at December 31, 2011
300,000
4.00
For the period ended September 30, 2012
Granted
-
-
Exercised
-
-
Expired
-
-
Outstanding at September 30, 2012
300,000
4.00
Exercisable at September 30, 2012
300,000
$
4.00
Outstanding Series A preferred stock warrants
at September 30, 2012 have a remaining contractual life of 3.4 years.
NOTE 6 –
CAPITAL LEASE OBLIGATIONS
InsPro Technologies has entered into several
capital lease obligations to purchase equipment used for operations. InsPro Technologies has the option to purchase the equipment
at the end of the 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:
September 30, 2012
December 31, 2011
Useful Life (Years)
Computer equipment and software
3
$
672,027
654,690
Phone System
3
15,011
15,011
Leasehold improvements
-
-
687,038
669,701
Less accumulated depreciation
(610,516
)
(555,141
)
$
76,522
$
114,560
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57
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 6 –
CAPITAL LEASE OBLIGATIONS
(continued)
Future minimum payments required under
capital leases at September 30, 2012 are as follows:
2012
$
27,025
2013
69,638
2014
66,541
2015
17,324
Total future payments
180,528
Less amount representing interest
10,433
Present value of future minimum payments
170,095
Less current portion
74,319
Long-term portion
$
95,776
NOTE 7 –
DEFINED CONTRIBUTION
401(k) PLAN
The Company implemented a 401(k) plan
on January 1, 2007. Eligible employees contribute to the 401(k) plan. Employees become eligible after attaining age 19 and after
90 days of employment with the Company. 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 "Contribution"). 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 $42,618 and $33,914 for the nine months ended September 30, 2012 and
2011, respectively.
NOTE 8 –
OPERATING LEASES AND
FUTURE COMMITMENTS
On September 14, 2007, InsPro Technologies
entered into a lease agreement with
BPG Officer VI Baldwin Tower L.P. ("BPG") for
approximately 5,524 square feet of office space at Baldwin Towers in Eddystone, Pennsylvania (the "BPG Lease"). On
March 26, 2008, and again on December 2, 2008, the Company and BPG agreed to amend the BPG Lease to increase the leased office
space by 1,301 and 6,810 square feet, respectively.
The term of the lease commenced on October 1, 2007
and was to expire on January 31, 2013. Under the terms of the BPG Lease, rent was waived for the first, second, tenth and twenty-fifth
months of the lease term.
On March 15, 2012, InsPro Technologies
and BPG agreed to amend the BPG Lease to extend its term to January 31, 2017, and after BPG completes certain building improvements
InsPro Technologies will move from its current location to another floor of the same building and lease 17,567 square feet of
furnished office space from BPG. InsPro Technologies' monthly rent shall be $24,887 per month commencing with InsPro Technologies'
occupancy of the new office space, which occurred in June 2012 through January 31, 2013. InsPro Technologies' monthly rent will
increase to $25,619 per month February 1, 2013 through January 31, 2014, increase to $26,351 per month February 1, 2014 through
January 31, 2015, increase to $27,082 per month February 1, 2015 through January 31, 2016, and finally increase to $27,814 per
month through February 1, 2016 through January 31, 2017.
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58
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 8 –
OPERATING LEASES AND
FUTURE COMMITMENTS (continued)
The Company recorded a liability for deferred
rent pertaining to its lease with Radnor Properties-SDC, L.P. in the amount of $110,357 as of September 30, 2012.
The Company leases certain real and personal
property under non-cancelable operating leases. Rent expense was $403,527 and $532,751 for the nine months ended September 30,
2012 and 2011, respectively.
Future minimum payments required under
operating leases and service agreements at September 30, 2012 are as follows:
2012
$
169,740
2013
560,032
2014
571,317
2015
581,709
2016
594,197
thereafter
93,335
Total
$
2,570,330
NOTE 9 –
SUBSEQUENT EVENTS
Management has evaluated the effects of
events subsequent to September 30, 2012 and has concluded that any events requiring adjustment to or disclosure in the financial
statements have been made.
Loan and Security Agreement with Silicon
Valley Bank
On October 3, 2012, the Company together
with InsPro Technologies (the "Borrowers") entered into a Loan and Security Agreement (the "Loan Agreement")
with Silicon Valley Bank ("SVB").
The Loan Agreement established a revolving
credit facility for the Borrowers in the principal amount of up to $2,000,000 (the "Revolving Facility"). Availability
under the Revolving Facility is tied to a borrowing base formula that is based on 80% of the Borrowers' eligible accounts
receivable, plus 20% of the aggregate unrestricted cash balance held at SVB (the "Borrowing Base"). Advances under
the Revolving Facility may be repaid and reborrowed in accordance with the Loan Agreement. No advances were made at closing however
an advance of $525,000 was made on October 15, 2012. Pursuant to the Loan Agreement, the Borrowers agreed to pay to SVB the outstanding
principal amount of all advances (the "Advances"), the unpaid interest thereon, and all other obligations incurred
with respect to the Loan Agreement on October 3, 2014. Interest will accrue on the unpaid principal balance of the Advances at
a floating per annum rate equal to 1% above the prime rate. During an event of default the rate of interest will increase 5% above
the otherwise applicable rate, until such event of default is cured or waived. All accrued and unpaid interest is payable monthly
on the first day of each month.
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59
INSPRO TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 9 –
SUBSEQUENT EVENTS (continued)
Subject to certain exceptions, the Loan
Agreement contains covenants prohibiting the Borrowers from, among other things: (a) conveying, selling, leasing, transferring
or otherwise disposing of their properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the
business currently engaged in or reasonably related thereto; (d) entering into any merger or consolidation, or acquiring all or
substantially all of the capital stock or property of another entity; (e) becoming liable for any indebtedness; (f) allowing any
lien or encumbrance on any of their property; (g) paying any dividends; and (h) making payment on subordinated debt. Further,
the Borrowers must maintain a minimum "adjusted quick ratio," tested as of the last day of each month, of at least
1.75:1.00 commencing August 31, 2012. The adjusted quick ratio (the "AQR") is the ratio of (x) the Borrowers'
consolidated, unrestricted cash maintained with SVB (and, for 90 days after the closing date, maintained with PNC Bank) plus net
unbilled accounts receivable to (y) the Borrowers' liabilities to SVB plus, without duplication, the aggregate amount of
the Borrowers' liabilities that mature within 1 year (excluding subordinated debt), minus the current portion of deferred
revenue.
The Loan is secured by a first priority
perfected security interest in substantially all of the assets of the Borrowers, excluding the intellectual property of the Borrowers.
The Loan Agreement contains a negative covenant prohibiting the Borrowers from granting a security interest in their intellectual
property to any party.
Under the terms of the Loan Agreement,
the Borrowing Base under the Revolving Facility was $1,563,414 and the AQR was 1.64 as of September 30, 2012, which is below the
required 1.75:1.00 AQR. The Company has notified SVB that the AQR as of September 30, 2012, is lower than the required amount,
which represented a default on the Loan Agreement by the Company. On November 13, 2012 SVB agreed to waive the default and the
Company and SVB agreed to amend the Loan Agreement to lower the Company's requirement to maintain an AQR of 1.75 to 1.0
to 1.50 to 1.0 commencing with the month ending November 30, 2012 and as of the last day of each month thereafter.
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60
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses payable
by us in connection with this registration statement are estimated as follows:
Commission Registration Fee
$341
Accounting Fees and Expenses
$6,500
Legal Fees and Expenses
$50,000
Printing Fees and Expenses
$10,000
Blue Sky Fees and Expenses (including legal fees)
$10,000
Miscellaneous
$5,000
Total
$81,841
Item 14. Indemnification of Directors and Officers.
Section 145 of the
Delaware General Corporation Law provides, in general, that a corporation incorporated under the laws of the State of Delaware,
such as us, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (other than a derivative action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding
if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. In the case of a derivative action, a Delaware corporation may indemnify any such person against expenses
(including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification will be made in respect of any claim, issue or matter
as to which such person will have been adjudged to be liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or any other court in which such action was brought determines such person is fairly and reasonably
entitled to indemnity for such expenses.
Our certificate of
incorporation and bylaws provide that we will indemnify our directors, officers, employees and agents to the extent and in the
manner permitted by the provisions of the Delaware General Corporation Law, as amended from time to time, subject to any permissible
expansion or limitation of such indemnification, as may be set forth in any stockholders' or directors' resolution
or by contract. We also have director and officer indemnification agreements with each of our executive officers and directors
which provide, among other things, for the indemnification to the fullest extent permitted or required by Delaware law, provided
that such indemnitee shall not be entitled to indemnification in connection with any "claim" (as such term is defined
in the agreement) initiated by the indemnitee against us or our directors or officers unless we join or consent to the initiation
of such claim, or the purchase and sale of securities by the indemnitee in violation of Section 16(b) of the Exchange Act.
Item 15. Recent Sales of Unregistered Securities
During the last three
years, we have issued the following securities that were not registered under the Securities Act:
On September 30, 2010,
we completed a private placement with certain accredited investors, including Independence Blue Cross, a Pennsylvania hospital
plan corporation, for an aggregate of 1,800,001 shares of our Series B Convertible Preferred Stock and warrants to purchase 18,000,010
shares of our common stock. We sold 1,800,001 investment units in the private placement at a per unit purchase price equal to
$3.00 for gross proceeds to us of $5.4 million. The sale was made pursuant to a Securities Purchase Agreement that we entered
into on September 30, 2010. Each unit sold in the private placement consisted of one share of Series B Convertible Preferred Stock
and a warrant to purchase 10 shares of common stock at an initial exercise price of $0.15 per share, subject to adjustment. Pursuant
to the Securities Purchase Agreement, on November 29, 2012, an additional 200,000 investment units were sold to Independence Blue
Cross, on the same terms and conditions as the units issued on September 30, 2012, for additional gross proceeds to us of $600,000.
II-
1
On December 22, 2010,
we completed a note conversion with The Co-Investment Fund II, L.P., in which we issued an aggregate of 797,378 shares of our
Series B Convertible Preferred Stock and warrants to purchase 7,973,780 shares of our common stock, as full repayment of all outstanding
principal and interest under our Loan Agreement and Secured Promissory Note with The Co-Investment Fund II, L.P. We issued 797,378
investment units in the note conversion at a per unit conversion price equal to $3.00. The conversion was made pursuant to a Note
Conversion Agreement that we entered into on December 22, 2010. Each unit issued in the note conversion consisted of one share
of Series B Convertible Preferred Stock and a warrant to purchase 10 shares of common stock at an initial exercise price of $0.15
per share, subject to adjustment.
On November 20, 2012,
we completed a private placement with certain accredited investors, including The Co-Investment Fund II, L.P., The Scarpa Family
Trust, 2005 and Azeez Investors, LLC, for an aggregate of 499,999 shares of our Series B Convertible Preferred Stock and warrants
to purchase 4,999,990 shares of our common stock. We sold 499,999 investment units in the private placement at a per unit purchase
price equal to $3.00 for gross proceeds to us of $1.5 million. The sale was made pursuant to a Securities Purchase Agreement that
we entered into on November 20, 2012. Each unit sold in the private placement consisted of one share of Series B Convertible Preferred
Stock and a warrant to purchase 10 shares of common stock at an initial exercise price of $0.15 per share, subject to adjustment.
No underwriters were
involved in the above sales of securities. The securities described above in this Item 15 were issued to investors in the United
States in reliance on the exemption from the registration requirements of the Securities Act, as set forth in Section 4(2) under
the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act relative to sales by an issuer not involving
any public offering.
During the last three
fiscal years, we also have issued the following securities that were not registered under the Securities Act:
As of January 1, 2010,
we had granted, pursuant to our 2008 Equity Compensation Plan and Directors Compensation Plan, options to purchase a total of
8,758,050 shares of common stock at a weighted average exercise price of $1.55 per share. Also as of January 1, 2010, we had granted,
pursuant to our 2008 Equity Compensation Plan, 364,010 restricted shares of common stock at a weighted average per share price
of $2.43 per share and 414,010 shares of common stock at a weighted average per share price of $0.73. Also as of June 20, 2011,
we had granted, pursuant to our 2010 Equity Compensation Plan, options to purchase a total of 1,000,000 shares of common stock
at a per share price of $0.10. The issuance of stock options and the common stock issuable upon the exercise of such options as
described in this Item 15 were issued pursuant to written compensatory plans or arrangements with the registrant's employees,
directors and consultants, in reliance on the exemption provided by Rule 701 under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
The following is a
list of exhibits filed as part of this registration statement. Where so indicated by footnote, exhibits that were previously filed
are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.
Exhibit Number
Description
2.1
Agreement and Plan of Merger, dated November 23, 2005,
    among Darwin Resources Corp., Health Benefits Direct Corporation, and HBDC II, Inc. (incorporated by reference to Exhibit
    2.1 to the Registrant's Current Report on Form 8-K filed with the Commission on November 30, 2005).
II-
2
Exhibit Number
Description
2.2
Agreement and Plan of Merger, dated as of September
    21, 2007, by and among the Company, HBDC Acquisition, LLC, System Consulting Associates, Inc. and the shareholders of System
    Consulting Associates, Inc. party thereto (incorporated by reference from Exhibit 2.1 to the Registrant's Current Report
    on Form 8-K, filed with the Commission on September 26, 2007).
3.1
Certificate of Incorporation (incorporated by reference
    to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Commission on November 22, 2005).
3.2
Amended and Restated Bylaws (incorporated by reference
    to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed with the Commission on December 3, 2007).
3.3
Certificate of Amendment to Certificate of Incorporation
    (incorporated by reference to Exhibit 3.3 to the Registrant's Current Report on Form 8-K filed with the Commission on
    November 30, 2005).
3.4
Certificate of Merger of HBDC II, Inc. with and into
    Health Benefits Direct Corporation (incorporated by reference to Exhibit 3.4 to the Registrant's Current Report on Form
    8-K filed with the Commission on November 30, 2005).
3.5
Certificate of Amendment to Certificate of Incorporation
    (incorporated by reference to Exhibit 3.5 to the Registrant's Registration Statement on Form SB-2, filed with the Commission
    on February 1, 2008).
3.6
Certificate of Designation with respect to shares of
    Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed
    with the Commission on January 21, 2009).
3.7
Certificate of Amendment to Certificate of Incorporation
    (incorporated by reference to Exhibit 3.7 to the Registrant's Annual Report on Form 10-K filed with the Commission on
    March 31, 2009).
3.8
Certificate of Designation with respect to shares of
    Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed
    with the Commission on October 1, 2010).
3.9
Certificate of Amendment to Certificate of Designation
    with respect to shares of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant's Current
    Report on Form 8-K filed with the Commission on December 23, 2010).
3.10
Certificate of Amendment to Certificate of Incorporation
    filed November 18, 2010 (incorporated by reference to Exhibit 3.10 to the Registrant's Annual Report on Form 10-K for
    the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).
3.11
Certificate of Amendment to Certificate of Incorporation
    filed on November 24, 2010 (incorporated by reference to Exhibit 3.11 to the Registrant's Annual Report on Form 10-K
    for the fiscal year ended December 31, 2010, filed with the Commission on March 31, 2011).
II-
3
Exhibit Number
Description
4.1
Form of Common Stock Purchase Warrant Certificate (incorporated by reference
    to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Commission on November 30, 2005).
4.2
Warrant to Purchase Common Stock issued to Alvin H. Clemens (incorporated
    by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31,
    2005, filed with the Commission on March 31, 2006).
4.3
Securities Purchase Agreement, dated March 30, 2007, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).
4.4
Registration Rights Agreement, dated March 30, 2007, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).
4.5
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).
4.6
Form of Placement Agent Warrant (incorporated by reference to Exhibit
    4.4 to the Registrant's Current Report on Form 8-K, filed with the Commission on March 30, 2007).
4.7
Registration Rights Agreement, dated October 1, 2007, by and between
    Health Benefits Direct Corporation and Computer Command and Control Company (incorporated by reference from Exhibit 4.1 to
    the Registrant's Current Report on Form 8-K, filed with the Commission on October 4, 2007).
4.8
Registration Rights Agreement, dated October 1, 2007, by and among Health
    Benefits Direct Corporation and Robert J. Oakes, Jeff Brocco, Tim Savery and Lisa Roetz (incorporated by reference from Exhibit
    4.2 to the Registrant's Current Report on Form 8-K, filed with the Commission on October 4, 2007).
4.9
Securities Purchase Agreement, dated March 31, 2008, by and between
    Health Benefits Direct Corporation and the Investor party thereto (incorporated by reference from Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.10
Securities Purchase Agreement, dated March 31, 2008, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.11
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.12
Form of Registration Rights Agreement, dated March 31, 2008, by and
    among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.4 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on March 31, 2008).
II-
4
Exhibit Number
Description
4.13
Form of Registration Rights Agreement, dated March 31, 2008, by and
    among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.3 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.14
Board Representation Agreement, dated March 31, 2008, between Health
    Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.5 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.15
Securities Purchase Agreement, dated January 14, 2009, by and between
    Health Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on January 21, 2009).
4.16
Registration Rights Agreement, dated January 14, 2009, by and between
    Health Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on January 21, 2009).
4.17
Preferred Warrant (incorporated by reference from Exhibit 4.3 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on January 21, 2009).
4.18
Form of Subscription Rights Certificate (incorporated by reference from
    Exhibit 4.18 to the Registrant's Registration Statement on Form S-1, filed with the Commission on December 31, 2009).
4.19
Form of Warrant (incorporated by reference from Exhibit 4.19 to the
    Registrant's Registration Statement on Form S-1, filed with the Commission on December 31, 2009).
4.20
Securities Purchase Agreement, dated September 30, 2010, by and among
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).
4.21
Registration Rights Agreement, dated September 30, 2010, by and among
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).
4.22
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).
4.23
Board Representation Agreement, dated September 30, 2010, by and between
    Health Benefits Direct Corporation and Independence Blue Cross (incorporated by reference from Exhibit 10.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).
4.24
Form of Addendum and Certificate of Adjustment to Warrant (incorporated
    by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed with the Commission on October 1,
    2010).
II-
5
Exhibit Number
Description
4.25
Form of Addendum and Certificate of Adjustment to Warrant (incorporated
    by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filed with the Commission on October 1,
    2010).
4.26
Note Conversion Agreement, dated December 22, 2010, by and between InsPro
    Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).
4.27
Registration Rights Agreement, dated December 22, 2010, by and between
    InsPro Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).
4.28
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).
4.29
Securities Purchase Agreement, dated November 20, 2012, by and among
    InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).
4.30
Registration Rights Agreement, dated November 20, 2012, by and among
    InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).
4.31
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).
4.32**
Form of Subscription Rights Certificate
4.33**
Form of Warrant
5.1**
Opinion of Morgan, Lewis & Bockius LLP
8.1**
Opinion of Morgan, Lewis & Bockius LLP regarding certain tax matters
10.1
Health Benefits Direct Corporation Compensation Plan for Directors (incorporated
    by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on March 20, 2006).
10.2
Lease Agreement, dated February 9, 2004, between Case Holding Co. and
    Platinum Partners, LLC (incorporated by reference to Exhibit 10.7 to the Registrant's Current Report on Form 8-K filed
    with the Commission on November 30, 2005).
10.3
Lease between Health Benefits Direct Corporation and FG2200, LLC, effective
    March 15, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with
    the Commission on March 6, 2006).
10.4
Employment Agreement, dated November 18, 2005, between Health Benefits
    Direct Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.14 to the Registrant's Current Report
    on Form 8-K filed with the Commission on November 30, 2005).
II-
6
Exhibit Number
Description
10.5
Amendment 2008-1 to Employment Agreement, dated March 31, 2008, between
    Health Benefits Direct Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.4 to the Registrant's
    Current Report on Form 8-K filed with the Commission on March 31, 2008).
10.6
Form of Director and Officer Indemnification Agreement (incorporated
    by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on January 17,
    2006).
10.7
Securities Contribution Agreement, dated September 9, 2005, among Health
    Benefits Direct Corporation, Marlin Capital Partners I, LLC, Scott Frohman, Charles A. Eissa, Platinum Partners II LLC and
    Dana Boskoff (incorporated by reference to Exhibit 10.22 to the Registrant's Current Report on Form 8-K filed with the
    Commission on November 30, 2005).
10.8
Employment Agreement, dated April 3, 2006, between HBDC II, Inc. and
    Ivan M. Spinner (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission
    on April 6, 2006).
10.9
Health Benefits Direct Corporation 2008 Equity Compensation Plan (incorporated
    by reference to the Registrant's Current Report on Form 8-K filed with the Commission on March 31, 2008).
10.10
Health Benefits Direct Corporation 2008 Equity Compensation Plan Form
    of Nonqualified Stock Option Grant (incorporated by reference to the Registrant's Current Report on Form 8-K filed with
    the Commission on March 28, 2008).
10.11
Sublease, dated March 7, 2006, between Health Benefits Direct Corporation
    and World Travel Partners I, LLC Form of Nonqualified Stock Option Grant (incorporated by reference to the Registrant's
    Current Report on Form 8-K filed with the Commission on May 19, 2006).
10.12
First Amendment to Sublease, dated April 18, 2006, between Health Benefits
    Direct Corporation ad World Travel Partners I, LLC (incorporated by reference to the Registrant's Current Report on
    Form 8-K filed with the Commission on May 19, 2006).
10.13
Letter Agreement, dated April 18, 2006, among World Travel Partners
    I, LLC, Health Benefits Direct Corporation, and 1120 Avenue of the Americas, LLC (incorporated by reference to the Registrant's
    Current Report on Form 8-K filed with the Commission on May 19, 2006).
10.14
Software and Services Agreement, dated May 31, 2006, among Health Benefits
    Direct Corporation, Insurint Corporation, and Realtime Solutions Group, L.L.C. (incorporated by reference to the Registrant's
    Current Report on Form 8-K filed with the Commission on June 2, 2006).
10.15
Lease, dated July 7, 2006, between Health Benefits Direct Corporation
    and Radnor Properties-SDC, L.P. (incorporated by reference to the Registrant's Current Report on Form 8-K filed with
    the Commission on July 10, 2006).
II-
7
Exhibit Number
Description
10.16
Separation Agreement, dated December 7, 2006, between Health Benefits
    Direct Corporation and Scott Frohman (incorporated by reference to the Registrant's Current Report on Form 8-K filed
    with the Commission on December 11, 2006).
10.17
Amendment No. 1 to Option, dated as of February 15, 2007, delivered
    by Health Benefits Direct Corporation to Daniel Brauser (incorporated by reference to the Registrant's Current Report
    on Form 8-K filed with the Commission on February 16, 2007).
10.18
Consent and Lock-Up Agreement, dated April 5, 2007, between Health Benefits
    Direct Corporation and Scott Frohman (incorporated by reference to the Registrant's Current Report on Form 8-K filed
    with the Commission on April 6, 2007).
10.19
Agreement to Transfer Partnership Interests, dated October 1, 2007,
    by and among HBDC Acquisition, LLC and the former partners of BileniaTech, L.P. (incorporated by reference from Exhibit 10.1
    to the Company's Current Report on Form 8-K, filed with the Commission on October 4, 2007).
10.20
Amended and Restated Employment Agreement, dated November 27, 2007,
    between Health Benefits Direct Corporation and Alvin H. Clemens (incorporated by reference to Exhibit 10.1 to the Registrant's
    Current Report on Form 8-K filed with the Commission on December 3, 2007).
10.21
Amended and Restated Employment Agreement, dated November 27, 2007,
    between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.2 to the Registrant's
    Current Report on Form 8-K filed with the Commission on December 3, 2007).
10.22
Amendment 2008-1 to Amended and Restated Employment Agreement, dated
    March 31, 2008, between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.3
    to the Registrant's Current Report on Form 8-K filed with the Commission on March 31, 2008).
10.23
Client Transition Agreement, between Health Benefits Direct Corporation,
    HBDC II, Inc. and eHealthInsurance Services, Inc. (incorporated by reference to Exhibit 10.31 to the Registrant's Annual
    Report on Form 10-K filed with the Commission on March 31, 2009).
10.24
Loan Agreement, dated December 22, 2009, by and among Health Benefits
    Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC, InsPro
    Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant's
    Current Report on Form 8-K filed with the Commission on December 29, 2009).
10.25
Secured Promissory Note, dated December 22, 2009, by and among Health
    Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC,
    InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant's
    Current Report on Form 8-K filed with the Commission on December 29, 2009).
II-
8
Exhibit Number
Description
10.26
First Amendment to Loan Documents, dated June 15, 2010,
    by and among Health Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum
    Partners, LLC, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to
    the Registrant's Current Report on Form 8-K filed with the Commission on June 17, 2010).
10.27
Health Benefits Direct Corporation 2010 Equity Compensation Plan (incorporated
    by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
    2010, filed with the Commission on March 31, 2011).
10.28
InsPro Technologies Corporation Amended and Restated Compensation Policy
    for Non-Employee Directors (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K,
    filed with the Commission on December 16, 2011).
10.29
Loan and Security Agreement, dated as of October 3, 2012, by and among
    InsPro Technologies Corporation, InsPro Technologies, LLC, Atiam Technologies L.P. and Silicon Valley Bank (incorporated by
    reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K, filed with the Commission on October 10, 2012).
14
Amended and Restated Code of Business Conduct and Ethics (incorporated
    by reference to Exhibit 14.1 to the Registrant's Current Report on Form 8-K filed with the Commission on February 4,
    2008).
21*
Subsidiaries of InsPro Technologies Corporation
23.1*
Consent of Sherb & Co., LLP
23.2**
Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1
    Opinion and Exhibit 8.1 Opinion)
99.1**
Form of Instructions for Use of InsPro Technologies Corporation Subscription
    Rights Certificate
99.2**
Form of Notice of Guaranteed Delivery
99.3**
Form of Letter to Security Dealers, Commercial Banks, Trust Companies
    and Other Nominees
99.4**
Form of Letter to Clients
99.5**
Form of Notice to Stockholders of Subscription Rights
99.6**
Form of Beneficial Owner Election Form
99.7**
Form of Nominee Holder Certification
____________
* 	Filed herewith.
**	To be filed by amendment.
II-
9
Item 17. Undertakings.
The undersigned Registrant
hereby undertakes:
(1)	To file, during
any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)	To include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)	To reflect in
the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective registration statement;
(iii)	To include
any material information with respect to the plan of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2)	That, for the
purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3)	To remove from
registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering.
(4)	That, for purposes
of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a)	or section 15(d)	of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to section 15(d)of the Securities Exchange Act of 1934)	that is incorporated by
reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(5)	To supplement
the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer, the transactions
by the underwriters during the subscription period, the amount of unsubscribed securities to be purchased by the underwriters,
and the terms of any subsequent reoffering thereof. If any public offering by the underwriters is to be made on terms differing
from those set forth on the cover page of the prospectus, a post-effective amendment will be filed to set forth the terms of such
offering.
(6)	Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(7)	For the purpose
of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant
to rule 424(b)(1), or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(8)	For the purpose
of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-
10
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorizes this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Radnor, Commonwealth of Pennsylvania, on this 31
st
day of December, 2012.
INSPRO
    TECHNOLOGIES CORPORATION
By:
/s/ ANTHONY R. VERDI
Anthony R. Verdi
Chief Executive Officer, Chief Financial
Officer and Chief Operating Officer
We, the undersigned
officers and directors of InsPro Technologies Corporation, hereby severally constitute and appoint Anthony R. Verdi our true and
lawful attorney with full power to him to sign for us and in our names in the capacities indicated below, the Registration Statement
on Form S-1 filed herewith and any and all subsequent amendments to said Registration Statement, and generally to do all such
things in our names and on our behalf in our capacities as officers and directors to enable InsPro Technologies Corporation to
comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our said attorney, or any of them, to said Registration
Statement and any and all amendments thereto.
Pursuant to the requirements
of the Securities Act of 1933, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Donald R. Caldwell
Donald R. Caldwell
Chairman
/s/ Anthony R. Verdi
Anthony R. Verdi
Chief Executive Officer, Chief Financial Officer, Chief Operating Officer
    and Director (Principal Executive Officer, Principal Financial and Accounting Officer)
/s/ Michael Azeez
Michael Azeez
Director
/s/ John Harrison
John Harrison
Director
/s/ Robert J. Oakes
Robert J. Oakes
Director
/s/ Sanford Rich
Sanford Rich
Director
/s/ Brian K. Adamsky
Brian K. Adamsky
Director
EXHIBIT INDEX
Exhibit Number
Description
2.1
Agreement and Plan of Merger, dated November 23, 2005, among Darwin
    Resources Corp., Health Benefits Direct Corporation, and HBDC II, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's
    Current Report on Form 8-K filed with the Commission on November 30, 2005).
2.2
Agreement and Plan of Merger, dated as of September 21, 2007, by and
    among the Company, HBDC Acquisition, LLC, System Consulting Associates, Inc. and the shareholders of System Consulting Associates,
    Inc. party thereto (incorporated by reference from Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed
    with the Commission on September 26, 2007).
3.1
Certificate of Incorporation (incorporated by reference to Exhibit 3.1
    to the Registrant's Current Report on Form 8-K filed with the Commission on November 22, 2005).
3.2
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2
    to the Registrant's Current Report on Form 8-K filed with the Commission on December 3, 2007).
3.3
Certificate of Amendment to Certificate of Incorporation (incorporated
    by reference to Exhibit 3.3 to the Registrant's Current Report on Form 8-K filed with the Commission on November 30,
    2005).
3.4
Certificate of Merger of HBDC II, Inc. with and into Health Benefits
    Direct Corporation (incorporated by reference to Exhibit 3.4 to the Registrant's Current Report on Form 8-K filed with
    the Commission on November 30, 2005).
3.5
Certificate of Amendment to Certificate of Incorporation (incorporated
    by reference to Exhibit 3.5 to the Registrant's Registration Statement on Form SB-2, filed with the Commission on February
    1, 2008).
3.6
Certificate of Designation with respect to shares of Series A Preferred
    Stock (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Commission
    on January 21, 2009).
3.7
Certificate of Amendment to Certificate of Incorporation (incorporated
    by reference to Exhibit 3.7 to the Registrant's Annual Report on Form 10-K filed with the Commission on March 31, 2009).
3.8
Certificate of Designation with respect to shares of Series B Preferred
    Stock (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Commission
    on October 1, 2010).
3.9
Certificate of Amendment to Certificate of Designation with respect
    to shares of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on
    Form 8-K filed with the Commission on December 23, 2010).
3.10
Certificate of Amendment to Certificate of Incorporation filed November
    18, 2010 (incorporated by reference to Exhibit 3.10 to the Registrant's Annual Report on Form 10-K for the fiscal year
    ended December 31, 2010, filed with the Commission on March 31, 2011).
Exhibit Number
Description
3.11
Certificate of Amendment to Certificate of Incorporation filed on November
    24, 2010 (incorporated by reference to Exhibit 3.11 to the Registrant's Annual Report on Form 10-K for the fiscal year
    ended December 31, 2010, filed with the Commission on March 31, 2011).
4.1
Form of Common Stock Purchase Warrant Certificate (incorporated by reference
    to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Commission on November 30, 2005).
4.2
Warrant to Purchase Common Stock issued to Alvin H. Clemens (incorporated
    by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31,
    2005, filed with the Commission on March 31, 2006).
4.3
Securities Purchase Agreement, dated March 30, 2007, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).
4.4
Registration Rights Agreement, dated March 30, 2007, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).
4.5
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 30, 2007).
4.6
Form of Placement Agent Warrant (incorporated by reference to Exhibit
    4.4 to the Registrant's Current Report on Form 8-K, filed with the Commission on March 30, 2007).
4.7
Registration Rights Agreement, dated October 1, 2007, by and between
    Health Benefits Direct Corporation and Computer Command and Control Company (incorporated by reference from Exhibit 4.1 to
    the Registrant's Current Report on Form 8-K, filed with the Commission on October 4, 2007).
4.8
Registration Rights Agreement, dated October 1, 2007, by and among Health
    Benefits Direct Corporation and Robert J. Oakes, Jeff Brocco, Tim Savery and Lisa Roetz (incorporated by reference from Exhibit
    4.2 to the Registrant's Current Report on Form 8-K, filed with the Commission on October 4, 2007).
4.9
Securities Purchase Agreement, dated March 31, 2008, by and between
    Health Benefits Direct Corporation and the Investor party thereto (incorporated by reference from Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.10
Securities Purchase Agreement, dated March 31, 2008, by and between
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).
Exhibit Number
Description
4.11
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.12
Form of Registration Rights Agreement, dated March 31, 2008, by and
    among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.4 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.13
Form of Registration Rights Agreement, dated March 31, 2008, by and
    among Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.3 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.14
Board Representation Agreement, dated March 31, 2008, between Health
    Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.5 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on March 31, 2008).
4.15
Securities Purchase Agreement, dated January 14, 2009, by and between
    Health Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on January 21, 2009).
4.16
Registration Rights Agreement, dated January 14, 2009, by and between
    Health Benefits Direct Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on January 21, 2009).
4.17
Preferred Warrant (incorporated by reference from Exhibit 4.3 to the
    Registrant's Current Report on Form 8-K, filed with the Commission on January 21, 2009).
4.18
Form of Subscription Rights Certificate (incorporated by reference from
    Exhibit 4.18 to the Registrant's Registration Statement on Form S-1, filed with the Commission on December 31, 2009).
4.19
Form of Warrant (incorporated by reference from Exhibit 4.19 to the
    Registrant's Registration Statement on Form S-1, filed with the Commission on December 31, 2009).
4.20
Securities Purchase Agreement, dated September 30, 2010, by and among
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).
4.21
Registration Rights Agreement, dated September 30, 2010, by and among
    Health Benefits Direct Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).
4.22
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).
4.23
Board Representation Agreement, dated September 30, 2010, by and between
    Health Benefits Direct Corporation and Independence Blue Cross (incorporated by reference from Exhibit 10.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on October 1, 2010).
Exhibit Number
Description
4.24
Form of Addendum and Certificate of Adjustment to Warrant (incorporated
    by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed with the Commission on October 1,
    2010).
4.25
Form of Addendum and Certificate of Adjustment to Warrant (incorporated
    by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filed with the Commission on October 1,
    2010).
4.26
Note Conversion Agreement, dated December 22, 2010, by and between InsPro
    Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).
4.27
Registration Rights Agreement, dated December 22, 2010, by and between
    InsPro Technologies Corporation and The Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).
4.28
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on December 23, 2010).
4.29
Securities Purchase Agreement, dated November 20, 2012, by and among
    InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.1 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).
4.30
Registration Rights Agreement, dated November 20, 2012, by and among
    InsPro Technologies Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).
4.31
Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
    Current Report on Form 8-K, filed with the Commission on November 26, 2012).
4.32**
Form of Subscription Rights Certificate
4.33**
Form of Warrant
5.1**
Opinion of Morgan, Lewis & Bockius LLP
8.1**
Opinion of Morgan, Lewis & Bockius LLP regarding certain tax matters
10.1
Health Benefits Direct Corporation Compensation Plan for Directors (incorporated
    by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on March 20, 2006).
10.2
Lease Agreement, dated February 9, 2004, between Case Holding Co. and
    Platinum Partners, LLC (incorporated by reference to Exhibit 10.7 to the Registrant's Current Report on Form 8-K filed
    with the Commission on November 30, 2005).
10.3
Lease between Health Benefits Direct Corporation and FG2200, LLC, effective
    March 15, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with
    the Commission on March 6, 2006).
Exhibit Number
Description
10.4
Employment Agreement, dated November 18, 2005, between Health Benefits
    Direct Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.14 to the Registrant's Current Report
    on Form 8-K filed with the Commission on November 30, 2005).
10.5
Amendment 2008-1 to Employment Agreement, dated March 31, 2008, between
    Health Benefits Direct Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.4 to the Registrant's
    Current Report on Form 8-K filed with the Commission on March 31, 2008).
10.6
Form of Director and Officer Indemnification Agreement (incorporated
    by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on January 17,
    2006).
10.7
Securities Contribution Agreement, dated September 9, 2005, among Health
    Benefits Direct Corporation, Marlin Capital Partners I, LLC, Scott Frohman, Charles A. Eissa, Platinum Partners II LLC and
    Dana Boskoff (incorporated by reference to Exhibit 10.22 to the Registrant's Current Report on Form 8-K filed with the
    Commission on November 30, 2005).
10.8
Employment Agreement, dated April 3, 2006, between HBDC II, Inc. and
    Ivan M. Spinner (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission
    on April 6, 2006).
10.9
Health Benefits Direct Corporation 2008 Equity Compensation Plan (incorporated
    by reference to the Registrant's Current Report on Form 8-K filed with the Commission on March 31, 2008).
10.10
Health Benefits Direct Corporation 2008 Equity Compensation Plan Form
    of Nonqualified Stock Option Grant (incorporated by reference to the Registrant's Current Report on Form 8-K filed with
    the Commission on March 28, 2008).
10.11
Sublease, dated March 7, 2006, between Health Benefits Direct Corporation
    and World Travel Partners I, LLC Form of Nonqualified Stock Option Grant (incorporated by reference to the Registrant's
    Current Report on Form 8-K filed with the Commission on May 19, 2006).
10.12
First Amendment to Sublease, dated April 18, 2006, between Health Benefits
    Direct Corporation ad World Travel Partners I, LLC (incorporated by reference to the Registrant's Current Report on
    Form 8-K filed with the Commission on May 19, 2006).
10.13
Letter Agreement, dated April 18, 2006, among World Travel Partners
    I, LLC, Health Benefits Direct Corporation, and 1120 Avenue of the Americas, LLC (incorporated by reference to the Registrant's
    Current Report on Form 8-K filed with the Commission on May 19, 2006).
10.14
Software and Services Agreement, dated May 31, 2006, among Health Benefits
    Direct Corporation, Insurint Corporation, and Realtime Solutions Group, L.L.C. (incorporated by reference to the Registrant's
    Current Report on Form 8-K filed with the Commission on June 2, 2006).
Exhibit Number
Description
10.15
Lease, dated July 7, 2006, between Health Benefits Direct Corporation
    and Radnor Properties-SDC, L.P. (incorporated by reference to the Registrant's Current Report on Form 8-K filed with
    the Commission on July 10, 2006).
10.16
Separation Agreement, dated December 7, 2006, between Health Benefits
    Direct Corporation and Scott Frohman (incorporated by reference to the Registrant's Current Report on Form 8-K filed
    with the Commission on December 11, 2006).
10.17
Amendment No. 1 to Option, dated as of February 15, 2007, delivered
    by Health Benefits Direct Corporation to Daniel Brauser (incorporated by reference to the Registrant's Current Report
    on Form 8-K filed with the Commission on February 16, 2007).
10.18
Consent and Lock-Up Agreement, dated April 5, 2007, between Health Benefits
    Direct Corporation and Scott Frohman (incorporated by reference to the Registrant's Current Report on Form 8-K filed
    with the Commission on April 6, 2007).
10.19
Agreement to Transfer Partnership Interests, dated October 1, 2007,
    by and among HBDC Acquisition, LLC and the former partners of BileniaTech, L.P. (incorporated by reference from Exhibit 10.1
    to the Company's Current Report on Form 8-K, filed with the Commission on October 4, 2007).
10.20
Amended and Restated Employment Agreement, dated November 27, 2007,
    between Health Benefits Direct Corporation and Alvin H. Clemens (incorporated by reference to Exhibit 10.1 to the Registrant's
    Current Report on Form 8-K filed with the Commission on December 3, 2007).
10.21
Amended and Restated Employment Agreement, dated November 27, 2007,
    between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.2 to the Registrant's
    Current Report on Form 8-K filed with the Commission on December 3, 2007).
10.22
Amendment 2008-1 to Amended and Restated Employment Agreement, dated
    March 31, 2008, between Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.3
    to the Registrant's Current Report on Form 8-K filed with the Commission on March 31, 2008).
10.23
Client Transition Agreement, between Health Benefits Direct Corporation,
    HBDC II, Inc. and eHealthInsurance Services, Inc. (incorporated by reference to Exhibit 10.31 to the Registrant's Annual
    Report on Form 10-K filed with the Commission on March 31, 2009).
10.24
Loan Agreement, dated December 22, 2009, by and among Health Benefits
    Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC, InsPro
    Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant's
    Current Report on Form 8-K filed with the Commission on December 29, 2009).
10.25
Secured Promissory Note, dated December 22, 2009, by and among Health
    Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC,
    InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant's
    Current Report on Form 8-K filed with the Commission on December 29, 2009).
Exhibit Number
Description
10.26
First Amendment to Loan Documents, dated June 15, 2010,
    by and among Health Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum
    Partners, LLC, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to
    the Registrant's Current Report on Form 8-K filed with the Commission on June 17, 2010).
10.27
Health Benefits Direct Corporation 2010 Equity Compensation Plan (incorporated
    by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
    2010, filed with the Commission on March 31, 2011).
10.28
InsPro Technologies Corporation Amended and Restated Compensation Policy
    for Non-Employee Directors (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K,
    filed with the Commission on December 16, 2011).
10.29
Loan and Security Agreement, dated as of October 3, 2012, by and among
    InsPro Technologies Corporation, InsPro Technologies, LLC, Atiam Technologies L.P. and Silicon Valley Bank (incorporated by
    reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K, filed with the Commission on October 10, 2012).
14
Amended and Restated Code of Business Conduct and Ethics (incorporated
    by reference to Exhibit 14.1 to the Registrant's Current Report on Form 8-K filed with the Commission on February 4,
    2008).
21*
Subsidiaries of InsPro Technologies Corporation
23.1*
Consent of Sherb & Co., LLP
23.2**
Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1
    Opinion and Exhibit 8.1 Opinion)
99.1**
Form of Instructions for Use of InsPro Technologies Corporation Subscription
    Rights Certificate
99.2**
Form of Notice of Guaranteed Delivery
99.3**
Form of Letter to Security Dealers, Commercial Banks, Trust Companies
    and Other Nominees
99.4**
Form of Letter to Clients
99.5**
Form of Notice to Stockholders of Subscription Rights
99.6**
Form of Beneficial Owner Election Form
99.7**
Form of Nominee Holder Certification
____________
* 	Filed herewith.
**	To be filed by amendment.