<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                        ---------------------------------

                                   FORM 10-QSB

[X]  Quarterly Report under Section 13 or 15d of the Securities Exchange Act of
     1934 for the quarterly period ended: December 31, 1998

[ ]  Transition report pursuant to Section 13 or 15d of the Securities
     Exchange Act of 1934 For the Transition period from _________ to __________

                         Commission file number: 1-12966


                                   INSCI CORP
             (Exact name of registrant as specified in its charter)

       Delaware                                        06-1302773              
------------------------                    ------------------------------------
(State of incorporation)                    (IRS employer identification number)

                          Two Westborough Business Park
                              Westborough, MA 01581
                    (Address of principal executive offices)

         Issuer's telephone number, including area code: (508) 870-4000

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes   X       No 
    -----        -----

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

Title of Each Class                             Outstanding December 31, 1998
-------------------                             -----------------------------
Common stock, par value $.01                             7,544,065

Transitional Small Business Disclosure Format (check one)

Yes           No   X
    -----        -----
<PAGE>

                                   INSCI CORP

                                      INDEX

PART I      FINANCIAL INFORMATION

Item 1.     Financial Statements

            Balance Sheet as of  December 31, 1998                           3
            Statements of Operations for the Three Months and                4
            Nine Months Ended December 31, 1998 and 1997

            Statements of Cash Flows for the Nine Months                     5
            Ended December 31, 1998 and 1997

            Notes to Financial Statements                                    6

Item 2.     Management's Discussion and Analysis or Plan of Operation        8


PART II     OTHER INFORMATION

Item 4.     Submission of  Matters to a Vote of Security Holders             13

Item 5.     Other Information                                                14

Item 6.     Exhibits and Reports on Form 8-K                                 15

            Signature                                                        16
<PAGE>

                                  BALANCE SHEET
                                 (in thousands)
                                   (unaudited)
                                                                   DECEMBER 31,
 ASSETS                                                               1998
                                                                     -------
 Current assets:
   Cash and cash equivalents                                         $ 1,355
   Accounts receivable, net                                            3,391
   Inventory                                                              50
   Prepaid expenses and other                                            118
                                                                     -------
        Total current assets                                           4,914
 Property & equipment, net                                               706
 Capitalized software development costs,
   net of accumulated amortization of $472                             1,010
 Purchased software, net of accumulated amortization of $721           1,303
 Other assets                                                            254
                                                                     -------
 Total assets                                                        $ 8,187
                                                                     =======

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
   Accounts payable                                                      835
   Accrued compensation                                                  342
   Accrued vacation                                                      270
   Accrued commissions                                                   328
   Accrued and other liabilities                                         506
   Deferred maintenance revenue                                        1,069
                                                                     -------
        Total current liabilities                                      3,350
                                                                     -------
 Stockholders' equity :
   Common stock                                                           71
   Preferred stock                                                        23
   Additional paid-in capital                                         26,677
   Accumulated deficit                                               (21,934)
                                                                     -------
        Total stockholders' equity                                     4,837
                                                                     -------
 Total liabilities and stockholders' equity                          $ 8,187
                                                                     =======

                             See accompanying notes
<PAGE>
                                   INSCI CORP
                            STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED             NINE MONTHS ENDED
                                                          DECEMBER 31,                    DECEMBER 31,
                                                      1998           1997            1998              1997
                                                     -------        -------         -------          -------
<S>                                                  <C>            <C>             <C>              <C>    
Revenue
  Product                                            $ 2,065        $ 1,382         $ 4,585          $ 2,772
  Services                                             1,660          1,406           4,649            3,716
                                                     -------        -------         -------          -------
        Total revenue                                  3,725          2,788           9,234            6,488
                                                     -------        -------         -------          -------
Cost of revenue
  Product                                                315            324             983            1,311
  Services                                               797            636           2,395            1,869
                                                     -------        -------         -------          -------
        Total cost of revenue                          1,112            960           3,378            3,180
                                                     -------        -------         -------          -------
Gross margin                                           2,613          1,828           5,856            3,308
                                                     -------        -------         -------          -------
Expenses
  Sales and marketing                                  1,111            999           3,114            2,743
  Product development                                    588            465           1,677            1,383
  General and administrative                             545            395           1,405            1,244
                                                     -------        -------         -------          -------
        Total expenses                                 2,244          1,859           6,196            5,370
                                                     -------        -------         -------          -------
Income (loss) from operations                            369            (31)           (340)          (2,062)
                                                     -------        -------         -------          -------
Interest income, net                                      17             40              62              134
                                                     =======        =======         =======          =======
Net income (loss)                                        386              9            (278)          (1,928)
                                                     =======        =======         =======          =======

Preferred stock dividends                               (189)          (222)           (487)            (669)
                                                     -------        -------         -------          -------
Net income (loss) applicable
  to common shares                                     $ 197         $ (213)         $ (765)        $ (2,597)
                                                     =======        =======         =======          =======
Net income (loss) per common share                    $ 0.03        $ (0.05)        $ (0.11)         $ (0.58)
                                                     =======        =======         =======          =======
Weighted average common
  shares outstanding                                   7,370          4,638           7,095            4,476
                                                     =======        =======         =======          =======
</TABLE>

                             See accompanying notes
<PAGE>
                                   INSCI Corp
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
                                                         Nine months ended 
                                                            December 31,
                                                         1998            1997
                                                       -------         -------- 
Cash flows from operating activities:
  Net (loss)                                           $  (278)        $(1,928)
  Reconciliation of net (loss) to net cash
  used in operating activities:
    Depreciation and amortization                          313             271
    Amortization of deferred software costs                647             663
    Stock options granted for services                      50
    Changes in assets and liabilities:
      Accounts receivable                                 (487)            432
      Prepaid expenses and other current assets            (14)            (61)
      Accounts payable                                     (46)           (168)
      Accrued and other liabilities                       (297)           (410)
      Deferred maintenance revenue                         155              23
      Other assets and liabilities                        (113)             43
                                                       -------         -------- 
Net cash used in operating activities                      (70)         (1,135)
                                                       -------         -------- 
Cash flows from investing activities:
  Additions to capitalized software development
    costs                                                 (355)           (481)
  Additions to purchased software costs                   (441)           (557)
  Capital expenditures                                    (380)           (291)
                                                       -------         -------- 
Net cash used in investing activities                   (1,176)         (1,329)
                                                       -------         -------- 
Cash flows from financing activities:
    Proceeds from exercise of stock options                  5              29
                                                       -------         -------- 
Net cash provided by financing activities                    5              29
                                                       -------         -------- 

Net change in cash and cash equivalents                 (1,241)         (2,435)
Cash and cash equivalents at beginning of period         2,596           5,068
                                                       -------         -------- 
Cash and cash equivalents at end of period             $ 1,355         $ 2,633
                                                       =======         =======

                             See accompanying notes
<PAGE>

                                   INSCI CORP

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

BASIS OF PRESENTATION

         The financial statements included herein have been prepared by INSCI
Corp (the "Company" or "INSCI"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. However,
the Company believes that the disclosures contained herein are adequate to make
the information presented not misleading. The financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's annual report on Form 10-KSB, filed on June 29, 1998, for the
fiscal year ended March 31, 1998, with the Company's definitive proxy statement
for its 1998 Annual Meeting of Stockholders filed with the Commission on July
29, 1998 and with additional definitive materials in conjunction with the
Company's 1998 Proxy filed with the Commission on August 7, 1998.

         In the opinion of the management of the Company, the accompanying
unaudited financial statements reflect all adjustments (of a normal and
recurring nature) which are necessary to present fairly the financial position
of the Company as of December 31, 1998 and the results of operations for the
three months and nine months ended December 31, 1998 and 1997 and cash flows for
the nine months ended December 31, 1998 and 1997.

         The financial statements included herein include consolidated results
for the Company's two wholly owned subsidiaries; (1) INSCI (UK) Limited, a
product development center located in the United Kingdom, and (2) INSCI
Philippines, Inc., a sales, support and product development center located in
the Philippines. During fiscal 1998, the Company's Board of Directors approved
the closing of the Company's Philippine subsidiary. This operation has been
closed as of December 31, 1998. Neither of these subsidiaries are financially
significant to the consolidated results of the Company.

         The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

EARNINGS PER SHARE

         Basic earnings (loss) per share is computed by dividing net income
(loss) after preferred stock dividends by the weighted average number of common
shares outstanding during the period. Diluted earnings per share incorporates
the dilutive effect of common stock equivalents on an average basis during the
period. The Company's common stock equivalents include convertible preferred
stock and stock options and warrants. Dilutive earnings (loss) per share has not
been presented for the three month and nine month periods ended December 31,
1998 and 1997 since the inclusion of common stock equivalents would have been
anti-dilutive.

CONTINGENCIES

         Registration Rights. On October 6, 1997 the Securities and Exchange
Commission declared effective the Form S-1/A(2) Registration Statement (File
Number 333-22187) that the Company filed with the Commission for 16,769,991
shares of common stock, of which 4,000,000 are reserved for acquisitions,
2,860,565 for selling shareholders and the balance of 9,909,426 for potential
issuance pursuant to rights granted to unit holders, convertible preferred
stockholders, and warrants and options issued by the Company. The registration
included "piggyback" shares pursuant to rights that the Company has granted to
the holders of certain warrants and shares of the Company's stock. The Company
did not file its Registration Statement within the time specified within its
registration rights agreements and as a result, could be subject to claims by
security holders that they were unable to convert their securities into shares
of registered Common Stock.

      The Company will be required to file a post effective amendment to update
the S-1 Registration Statement with respect to the 4,000,000 shares reserved for
acquisitions to keep the Registration Statement effective. The Company believes
that the selling shareholders listed in the Registration Statement will qualify
under other exemptions under the Securities Act of 1933, as amended.

CREDIT FACILITY

          On August 7, 1998, the Company and Silicon Valley Bank ("SVB")
finalized a bank line of credit Agreement ("Agreement"). The terms of this
Agreement provide for a $1,500,000 working capital credit facility for a term of
one year. The terms further provide for working capital advances up to seventy
five percent of the Company's eligible domestic accounts receivable under ninety
days from invoice date. Collateral for the line, which is secured by a lien, is
comprised of all Company assets. The rate of interest to be paid to SVB is prime
plus one percent. In order to borrow against the line, the Company is required
to meet certain covenants which include minimum tangible net worth of $2 million
and a quick ratio of 1:50 to 1. The Company, at its option, may terminate the
credit facility with SVB without penalty. To date, the Company has not utilized
any portion of this credit facility.
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION

COMPARISON OF RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, the
percentage relationship that certain items of the Company's results of
operations bear to total revenue:

<TABLE>
<CAPTION>
                                                              Items as percent of total revenue
                                                            Three months ended Nine months ended
                                                         Decmber 31                    December 31
                                                    1998           1997            1998            1997
                                                  -----          -----           -----           -----
<S>                                                 <C>            <C>             <C>             <C> 
Revenue                                               %              %               %               %
  Product                                            55             50              50              43
  Services                                           45             50              50              57
                                                  -----          -----           -----           -----
        Total revenue                               100            100             100             100
Cost of revenue
  Product                                             8             12              11              20
  Services                                           21             23              26              29
                                                  -----          -----           -----           -----
        Total cost of revenue                        29             35              37              49
                                                  -----          -----           -----           -----
Gross margin                                         71             65              63              51
Expenses
  Sales and marketing                                30             36              34              42
  Product development                                16             17              18              21
  General and administrative                         15             14              15              19
                                                  -----          -----           -----           -----
        Total expenses                               61             67              67              82
                                                  -----          -----           -----           -----
Income (loss) from operations                        10             -2              -4             -31
Interest income, net                                  0              1               1               2
                                                  -----          -----           -----           -----
Net income (loss)                                    10             -1              -3             -29
                                                  =====          =====           =====           =====
</TABLE>

THREE MONTHS ENDED DECEMBER 31, 1998 AS COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1997:

REVENUE

         INSCI develops, sells, installs and supports electronic document
repository software with integrated Internet, imaging, workflow,
print-on-demand, electronic distribution and archive (COLD) software for the
enterprise level (high volume production) market. INSCI's software products
enable customers to improve their services through electronic access to
documents (e.g. invoices, statements, reports, etc.); provide financial savings
through elimination of paper and microfiche; and provide the foundation for the
digital document "back office" for electronic commerce applications. Sales to
end users generally include software, systems integration and consulting
services, installation, and training. Post-installation maintenance and customer
support is available under the terms of a separate contract at an additional
charge. INSCI sells its products through a combination of a direct sales force
and indirectly through VAR's, distributors and sales alliances with companies
including Unisys Corporation, Xerox Corporation and Moore Corporation. Revenue
is net of discounts and allowances given to third party VARs and distributors.

         Total revenue for the quarter ended December 31,1998 (the "current
quarter") was $3,725,000 and increased by 33% compared to revenue of $2,788,000
for the quarter ended December 31, 1997. The increase in sales in this fiscal
year's third quarter was largely driven by market acceptance of the Company's
new COINSERV(TM) for Windows NT and Web-based products. Sales increased through
both the Company's direct and indirect sales channels, which include such
strategic partners as Xerox, Unisys and Fuji Xerox. The December 31, 1998
quarter represented the highest quarterly revenue in the Company's history.

         Product revenue was $2,065,000 for the current quarter and increased by
49% compared to product revenue of $1,382,000 for the same quarter last year.
The increase in product revenues reflects increases from the Company's new NT
based products. Service revenues, which include systems integration and customer
support services, totaled $1,660,000 for the current quarter, and increased by
18% compared to revenues of $1,406,000 for the same period last year. This
increase reflects a growing installed base of customers that require integration
and support services. To the degree that the Company's revenues grow over the
next several quarters, it is expected that product revenues will grow at a
faster rate than service revenues as the result of the Company's new products.

         For the quarter ended December 31, 1998, the Company received in excess
of ten percent of its total revenues from Unisys Corp, a strategic sales partner
of the Company. A decline in revenues from this sales partner in future quarters
could materially effect the revenues and operating results of the Company.

GROSS MARGIN AND COST OF REVENUE

         Gross margin for the quarter ended December 31, 1998 was $2,613,000 and
increased 43% compared to gross margin of $1,828,000 for the same quarter last
year. Gross margin as a percent of revenues was 71% for the current quarter
compared to 65% for the same quarter last year. The increase in gross margin is
primarily the result of increased product revenue for the current quarter.

         Cost of product revenue as a percentage of product revenue was 15% in
the current quarter as compared to 23% for the same quarter last year. Cost of
services revenue was 48% in the current quarter as compared to 45% for the same
quarter last year. The decrease in cost of product revenue as a percent of
revenues in the current quarter reflects the relatively fixed nature of
amortization costs of capitalized software. To the degree that the Company's
product revenues grow in future periods, cost of revenue as a percent of revenue
is expected to decrease as increased revenues are available to absorb
amortization costs.

SALES AND MARKETING

         Sales and marketing expenses for the quarter ended December 31, 1998
were $1,111,000 and increased by 11%, compared to expenses of $999,000 for the
quarter ended December 31, 1997. The expense increase reflects increases in
commissions related to revenue increases plus added marketing programs relative
to generating potential revenue increases in future quarters.

PRODUCT DEVELOPMENT

         The Company's product development program has been directed toward
creating a suite of complementary products to meet customer and marketplace
requirements for a more complete electronic document management solution. This
development program includes enhancement of existing Unix based products
combined with development of new NT based products. During fiscal 1998, the
Company announced the addition of six new products to its offerings; WebCOINS,
an Internet product; COINSflow, a workflow product; Advanced COINSCAN, an
imaging product; Advanced COINSERV, a document archive and retrieval product;
and Setup Expert, an application set up interface. The Company also released a
major new product in October, 1997, COINSERV for Windows NT, an electronic
document repository with Internet access and integrated imaging and workflow.
This software product can archive and retrieve high volumes of documents
operating on the NT platform.

          The additions to INSCI's product offerings, along with enhancements to
existing products, have been funded by the Company's gross expenditures for
software products. Gross product development expenses for the quarter ended
December 31, 1998 were $936,000 before capitalization of software expenses of
$348,000, for net product development expenses of $588,000. Gross development
expenses for the quarter ended December 31, 1997 were $808,000, before
capitalization of software expenses of $343,000, for net product development
expenses of $465,000. The increase of gross expenditures for the current quarter
compared to the same period last year is the result of additional expenditures
to enhance the Company's newer line of NT and Web based products. Added
development expenditures are typical in the early life cycle of software
products.

GENERAL AND ADMINISTRATIVE

         General and administrative expenses were $545,000 for the quarter ended
December 31, 1998 and increased by 38% compared to $395,000 for the same quarter
last year. This increase reflects expenses associated with the addition of a
President to the Company's executive organization, combined with incentives
related to the increase in revenues and profitability for the current quarter.

INTEREST INCOME, NET

         Net interest income for the quarter ended December 31, 1998 was $17,000
compared to $40,000 for the same quarter last year. The decrease reflects lower
cash balances in the current quarter with correspondingly lower interest income.

NET INCOME (LOSS)

         Net income for the quarter ended December 31, 1998 was $386,000
compared to a net income of $9,000 for the quarter ended December 31, 1997. The
increase in net income reflects revenue growth of 33% and gross margin growth of
43%, compared to expense growth of 21%.

NINE MONTHS ENDED DECEMBER 31, 1998 AS COMPARED TO THE NINE MONTHS ENDED
DECEMBER 31, 1997:

         Total revenue for the nine months ended December 31, 1998 (the "current
period") was $9,234,000 and increased by 42% compared to revenue of $6,488,000
for the nine months ended December 31, 1997. Product revenue was $4,585,000 for
the current period and increased by 65% compared to product revenue of
$2,772,000 for the same period last year. The increase in product revenues
reflects the impact of the Company's new Windows NT and Web based products and
increasing utilization of both direct and indirect sales channels. Revenues sold
through indirect sales channels include Unisys, Xerox and several other third
party selling partners. The Company believes that it now has the products and
channels to support increased product revenue growth in future periods. However,
the long sales cycle associated with the Company's market combined with large
orders that will impact total quarterly revenues can result in
quarter-to-quarter revenue volatility.

         Service revenues totaled $4,649,000 for the current period, and
increased by 25% compared to revenues of $3,716,000 for the same period last
year. Increased service revenues are linked to increases in product revenues and
the Company's installed base. In many cases customers require the Company's
systems integration and training support in order to efficiently implement the
Company's software products. The Company expects services revenues to grow in
relation to increases in product revenue growth.

         For the nine months ended December 31, 1998, the Company received in
excess of ten percent of its total revenues from Unisys Corp. A decline in
revenues from this sales partner in future quarters could materially effect the
revenues and operating results of the Company.

GROSS MARGIN AND COST OF REVENUE

         Gross margin for the nine months ended December 31, 1998 was $5,856,000
and increased by 77% compared to gross margin of $3,308,000 for the same period
last year. Gross margin as a percent of revenues was 63% for the current period
compared to 51% for the same period last year. The increase in gross margin is
primarily the result of increased revenue for the current period.

         Cost of product revenue as a percentage of product revenue was 21% in
the current period as compared to 47% for the same period last year. The
decrease in cost of product revenues as a percent of revenues reflects the
relatively fixed nature of amortization of capitalized software expenses which
do not increase at the same rate as revenues increases. Cost of services revenue
was 52% in the current period as compared to 50% for the same period last year.
The increase in cost of services revenues reflects differences in mix and
pricing of services provided and is not indicative of any changes in ongoing
trends. To the extent that the Company's revenues grow in future periods, cost
of revenue as a percent of revenue is expected to decrease as increased revenues
are available to absorb those costs that are relatively fixed in nature.

SALES AND MARKETING

         Sales and marketing expenses for the nine months ended December 31,
1998 were $3,114,000 and increased by 14%, compared to expenses of $2,743,000
for the same period last year. The expense increase primarily reflects increases
in commissions related to revenue increases. Sales and marketing expenses as a
percent of revenue were 34% for the current period compared to 42% for the same
period last year. The selling expense rates associated with increased revenues
are less than the total selling expense base rate, which includes infrastructure
expenses. As a result, sales and marketing expense as a percent of revenue
decreased as current period revenues increased over last year. It is expected
that sales and marketing expense as a percent of revenue will decrease to the
extent that future revenues increase.

PRODUCT DEVELOPMENT

         Gross product development expenses for the nine months ended December
31, 1998 were $2,473,000, before capitalization of software expenses of
$796,000, for net product development expenses of $1,677,000. Gross product
development expenses for the nine months ended December 31, 1997 were
$2,421,000, before capitalization of software expenses of $1,038,000, for net
product development expenses of $1,383,000. Net product development costs have
increased in the current period reflecting additional expenditures associated
with the Company's new NT and Web based products. The Company's current plans
are to continue development expenditures at approximately the current level in
order to maintain product leadership in the markets served.

GENERAL AND ADMINISTRATIVE

         General and administrative expenses were $1,405,000 for the nine months
ended December 31, 1998 and increased by 13% compared to $1,244,000 for the same
period last year. Changes in G&A expenses for the current period reflect added
expenses associated with the addition of a President to the Company's executive
staff combined with increases in management incentives related to improved
profitability.

INTEREST INCOME, NET

         Net interest income for the period ended December 31, 1998 was $62,000
compared to $134,000 for the same period last year. The decrease reflects lower
cash balances in the current period with correspondingly lower interest income.

NET INCOME (LOSS)

         Net loss for the nine months ended December 31, 1998 was $278,000
compared to a net loss of $1,928,000 for the nine months ended December 31,
1997. The decrease in loss in the current period reflects revenues that grew by
42% compared to expense increases of 15%.
<PAGE>

YEAR 2000 COMPUTER SOFTWARE CONVERSION

         Many computer systems will experience problems handling dates beyond
the year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. The Company has
assessed both internal readiness of its computer systems and the compliance of
its computer software sold to customers for its ability to process the year
2000. The Company believes that it is materially ready to process year 2000
requirements and that the remaining minor changes scheduled to be completed over
the next four months will be successfully implemented as part of the Company's
normal maintenance update of internal systems. The majority of the costs
associated with implementing the Company's year 2000 compliance program have
already been recognized and have not been material in terms of the Company's
financial operating results. Costs associated with implementing the final
portions of the Company's program over the next four months are not expected to
be material. The Company believes there is little risk associated year 2000
issues relative to its internal operations or computer software sold. There can
be no assurance, however, that there will not be a delay in, or increased costs
associated with the implementation of such changes. The Company's inability to
implement such changes could have an adverse effect on future results of
operations.

FORWARD LOOKING COMMENTS

         During fiscal 1998, the Company's revenues were impacted by reduced
demand for its Unix based software products during the first and second fiscal
quarters. To offset this reduced demand and participate in the rapidly growing
Windows NT based market, the Company introduced a Windows NT based product in
October, 1997. In addition, during fiscal 1998, a significant portion of the
Company's sales and technical resources were directed toward increased support
of the Company's indirect sales channels, at the cost of reducing the Company's
direct sales activities. The Company believes that opportunities to increase
future revenues are best served by supporting these sales channels due to the
existing customer relationships that these channels have and the relatively
large number of sales personnel that the channels can direct to selling the
Company's products, as compared to much lower sales coverage of the Company's
internal direct sales force. The increase in revenues for the nine months ended
December 31, 1998 compared to the same period last year reflects the positive
impact on revenues of the Company's new products and increased revenues through
indirect channels. The Company is not able to predict, however, when and to what
degree future revenue increases from its NT based products or increased use of
sales channels may occur.

LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 1998 the Company had $1,355,000 of cash and working
capital of $1,564,000 in comparison to $2,633,000 of cash and working capital of
$2,440,000 as of December 31, 1997. The present cash reserves of the Company are
believed to be sufficient to meet the foreseeable needs of the Company. The
Company has available a $1.5 million working capital bank line which it has not
utilized. Accounts receivable were $3,391,000 with weighted days outstanding of
39 as of December 31, 1998 compared to receivables of $2,059,000 with weighted
days outstanding of 38, as of December 31, 1997. The Company targets average
collections at 45 days. Actual receivable days were below this target due to the
lack of any extended payment terms in the Company's current mix of receivables.

         The Company's cash flows are summarized below for the periods
indicated: (in thousands)

                                                NINE MONTHS ENDED DECEMBER 31,
                                                    1998            1997
                                                    ----            ----
Cash provided by (used in)
  Operating activities                             $   (70)        $(1,135)
  Investing activities                              (1,176)         (1,329)
  Financing activities                                   5              29
                                                   -------         ------- 
    Increase(decrease) in cash and cash
      equivalents                                  $(1,241)        $(2,435)
                                                   =======         ======= 

Cash and cash equivalents at end of period         $ 1,355         $ 2,633

         Cash use decreased by $1,194,000 for the nine months ended December 31,
1998 compared to the same period last year, primarily as the result of a
reduction in net loss for the current period. The Company used cash of $70,000
in operating activities for the nine months ended December 31, 1998. Net cash
used in investing activities was $1,176,000 for the current period, primarily
from additions to capitalized and purchased software. Cash provided by financing
activities was minimal for the period, and reflected the exercise of Company
stock options.

         On August 7, 1998, the Company and Silicon Valley Bank ("SVB")
finalized a bank line of credit Agreement ("Agreement"). The terms of this
Agreement provide for a $1,500,000 working capital credit facility for a term of
one year. The terms further provide for working capital advances up to seventy
five percent of the Company's eligible domestic accounts receivable under ninety
days from invoice date. Collateral for the line, which is secured by a lien, is
comprised of all Company assets. The rate of interest to be paid to SVB is prime
plus one percent. In order to borrow against the line, the Company is required
to meet certain covenants which include minimum tangible net worth of $2 million
and a quick ratio of 1:50 to 1. The Company, at its option, may terminate the
credit facility with SVB without penalty.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT:

         With the exception of historical information, the matters discussed in
this report are "forward looking statements" as the term is defined in Section
21E of the Securities Exchange Act of 1934. While the Company believes that its
strategic plan is on target and the business outlook remains strong, several
important factors, many of which are beyond the control of the Company, have
been identified which could cause results to differ materially from historical,
planned, implied or predicted results of the Company. While the Company has
achieved an operating income in some past quarters, INSCI historically has been
unable to generate sales volumes necessary to achieve profitability on a
sustained basis. INSCI has experienced, and may in the future experience,
significant quarter to quarter fluctuations in revenues and the results of
operations. Such fluctuations may result in volatility in the market price of
the Company's Common Stock.

          Quarterly revenues and results of operations may fluctuate as the
result of a variety of factors, including the lengthy sales cycle for the
Company's products, the proportion of revenues attributable to software license
fees versus services, the amount of revenue generated by alliances with other
companies selling INSCI's products, demand for the Company's products, the size
and timing of individual license transactions, the introduction of new products
and product enhancements by the Company or its competitors, changes in customer
budgets, competitive conditions in the industry and general economic conditions.
Additionally, the sale of the Company's products generally involves a
significant commitment of capital by its customers and may be delayed due to
time consuming authorization procedures within an organization. Other factors
affecting the Company's operating results include INSCI's ability to design and
introduce on a timely basis new products which compete effectively on the basis
of price and performance and which address customer requirements, product
obsolescence, technological changes, competition and competitive pressures on
price, the ability to hire and retain qualified personnel and general economic
conditions affecting the investment by potential customers in peripheral
computer devices. There is no assurance that the Company can maintain or
increase its sales volume going forward or that it will be able to achieve a
profit in the marketing of its products.

PART II  OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         On September 10, 1998, the Company's Annual Meeting of Stockholders
("Annual Meeting") was held at the Company's offices in Westborough MA. The
record date to determine Stockholders entitled to vote at the Annual Meeting was
July 28, 1998 and shares of the Company's Common Stock issued and outstanding as
of this date and entitled to vote were 7,104,610 shares.

         The following individuals standing for re-election as Directors and/or
nominated to serve as Directors were elected by a majority vote of shareholders:

         Dr. E. Ted Prince, Francis X. Murphy, Andre Daniel-Dreyfus, Thomas
Farkas, Robert F. Little, Darryl R. Dobin and John A. Lopiano. All individuals
standing for re-election as Directors and/or nominated to serve as Directors
were elected by a majority of shareholders. Messrs. Prince, Murphy and Dreyfus
were re-elected as Directors. Messrs. Farkas, Little and Lopiano were elected as
new Directors. Dr. Prince received 4,912,245 votes for election, no votes
against, and 154,835 abstentions. All other Director nominees received 4,912,445
for election, no votes against, and 154,635 abstentions.

         Shareholders approved by a majority vote to ratify the appointment of
Pannell Kerr Forster PC as the independent public accountants for the Company's
fiscal year ended March 31, 1998. The number of votes cast for the proposal were
5,037,610, against 10,090, and abstentions, 19,380.

         Shareholders approved by a majority vote to ratify and approve the
Board of Directors' resolution to extend the expiration term of the
non-qualified stock options granted to three former members of the Board of
Directors and to current members of the Board and Executive Officers of the
Company from 90 days following termination of service or departure from the
Board or as Executive Officers to 24 months from termination or departure. The
number of votes cast for the proposal were 4,680,174, against 383,506, and
abstentions, 3,400.

ITEM 5.  OTHER INFORMATION

         On August 7, 1998, the Company and Silicon Valley Bank ("SVB")
finalized a bank line of credit Agreement ("Agreement"). The terms of this
Agreement provide for a $1,500,000 working capital credit facility for a term of
one year. The terms further provide for working capital advances up to seventy
five percent of the Company's eligible domestic accounts receivable under ninety
days from invoice date. Collateral for the line, which is secured by a lien, is
comprised of all Company assets. The rate of interest to be paid to SVB is prime
plus one percent. In order to borrow against the line, the Company is required
to meet certain covenants which include minimum tangible net worth of $2 million
and a quick ratio of 1:50 to 1. The Company, at its option, may terminate the
credit facility with SVB without penalty. To date, the Company has not utilized
any portion of this credit facility.

         On September 10, 1998 the Company granted Mr. John Lopiano, as a new
Director, 100,000 options to purchase 100,000 shares of the Company's Common
Stock at $1.09 per share. Additionally, Frank Murphy, a Director of the Company,
was granted 100,000 options to purchase 100,000 shares of the Company's Common
Stock at $1.09 per share for Mr. Murphy's continued service as a Director of the
Company. These stock options vest one third annually over three years and were
granted in accordance with and are subject to the terms and conditions of the
Company's Directors Stock Option Plan. In addition, Mr. E. Ted Prince, Chairman
of the Board and Chief Executive Officer, and Mr. Darryl Dobin, President of the
Company, executed employment agreements with the Company.

         The Company's Audit Committee has been revised to include Andre
Dreyfus, Chairman, Thomas Farkas and Roger Kuhn. Additionally, the Company's
Compensation Committee was also revised to include Frank Murphy, Chairman,
Robert Little and John Lopiano as members of the Committee. A majority of the
Audit and Compensation Committees are comprised of independent directors of the
Company.

         In accordance with the provisions of the stock purchase agreement for
the Company's 8% Convertible Redeemable Preferred Stock ("Preferred Stock"),
dividends for the quarter commencing October 1, 1998, increased to a rate of 11%
per annum, from the previous 8% per annum rate that has been paid on this
Preferred Stock. The Company may, at its election, pay dividends on this
Preferred Stock in cash or by issuing additional Preferred Stock. To date, all
dividends have been paid in the form of additional Preferred Stock.

         The Company has resolved all pending claims with holders of 187,500
warrants. The Company has issued an aggregate of 70,000 shares of its Common
Stock in consideration for the warrant holders' surrender of their warrants for
cancellation by the Company. The warrant holders have released the Company from
liability in connection with the warrant holders claims.

         The Company has entered into individual consulting agreements with Xcel
Associates, Inc., D. Weckstein & Co., Inc., J. Michael Reisert Group, Jerry
Franz and Marc Kalish. The respective agreements provide for business
consultation and advisory services related to increasing market awareness of the
Company's common stock, and providing strategic planning.

         In consideration for the consulting services to be provided by Xcel
Associates, Inc. ("XAI"), the Company has agreed pay XAI the sum of $5,000 per
month for a period of six months in addition, the Company has agreed at its sole
option to either pay XAI the additional sum of $4,000 per month for the six (6)
month term of the agreement or to grant 100,000 stock options, exercisable in
one/sixth increments every 30 days over the term of the agreement to purchase
Insci Common Stock at $1.04 per share. The exercise price of the options is
based upon the 10 day average closing price of the Company's common stock
immediately proceeding the date of the agreement. In accordance with the terms
of the agreement, the option may not be exercised after January 1, 2002.

         In consideration for the consulting services to be provided by D.
Weckstein & Co., Inc. ("Weckstein"), the Company has agreed at its sole option
to either pay Weckstein the sum of $2,000 per month for the six (6) month term
of the agreement or to grant 50,000 stock options, exercisable in one/sixth
increments every 30 days over the term of the agreement to purchase Insci Common
Stock at $1.04 per share. The exercise price of the options is based upon the 10
day average closing price of the Company's common stock immediately proceeding
the date of the agreement. In accordance with the terms of the agreement, the
option may not be exercised after January 1, 2002.

         In consideration for the consulting services to be provided by J.
Michael Reisert Group ("Reisert"), the Company has agreed at its sole option to
either pay Reisert the sum of $1,500 per month for the six (6) month term of the
agreement or to grant 36,000 stock options, exercisable in one/sixth increments
every 30 days over the term of the agreement to purchase Insci Common Stock at
$1.04 per share. The exercise price of the options is based upon the 10 day
average closing price of the Company's common stock immediately proceeding the
date of the agreement. In accordance with the terms of the agreement, the option
may not be exercised after January 4, 2001.

         The Company has also entered into separate Business Consulting
Agreements with Messrs. Jerry Franz and Marc Kalish. Under the terms of the
respective consulting agreements, the Company at its sole option may pay a
one-time fee of $5,000, or, in the alternative, at the Company's option, to
grant 5,000 stock options exercisable at $1.04 per share. The exercise price of
the options is based upon the 10 day average closing price of the Company's
common stock immediately proceeding the agreements. In accordance with the terms
of the respective agreements, the options may not be exercised after January 5,
2000.

         The Company intends to file a Form S-8 Registration Statement for the
shares of common stock underlying the stock options granted under the
aforementioned consulting agreements.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS.

              Exhibit 27, Financial Data Schedule
<PAGE>




          (B) REPORTS ON FORM 8-K.

              A report on Form 8-K, dated December 23, 1998, was filed by the
              Company on December 30, 1998, regarding the extension of the
              expiration date of the Company's warrants from December 31, 1998
              to December 31, 1999, which are exercisable at $9.00 per share.


                                    SIGNATURE

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

                                                INSCI CORP

Date:  February 12, 1999               By:      /S/ ROGER C. KUHN
                                                ----------------------------
                                                Roger C. Kuhn
                                                Vice President and Chief 
                                                  Financial Officer
<PAGE>

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