<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: September 30, 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 at September 30, 1998
-------------------                            ---------------------------------
Common stock, par value $.01                               7,182,276

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  September 30, 1998                            3

            Statements of Operations for the Three Months and
            Six Months Ended September 30, 1998 and 1997                       4

            Statements of Cash Flows for the Six Months                        5
            Ended September 30, 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               14

Item 5.     Other Information                                                 14

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

            Signature                                                         15
<PAGE>

 PART I     FINANCIAL INFORMATION:

                                   INSCI Corp
                                  BALANCE SHEET
                                 (in thousands)
                                   (unaudited)
                                                               SEPTEMBER 30,
 ASSETS                                                            1998
                                                               -------------
 Current assets:
      Cash and cash equivalents                                  $ 1,593
      Accounts receivable, net                                     2,526
      Inventory                                                       50
      Prepaid expenses and other                                     134
                                                                 -------
        Total current assets                                       4,303
 Property & equipment, net                                           736
 Capitalized software development costs,
   net of accumulated amortization of $567                           798
 Purchased software, net of accumulated 
   amortization of $527                                            1,363
 Other assets                                                        188
                                                                 -------
 Total assets                                                    $ 7,388
                                                                 =======

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
      Accounts payable                                               696
      Accrued compensation                                           326
      Accrued vacation                                               262
      Accrued commissions                                            172
      Accrued and other liabilities                                  441
      Deferred maintenance revenue                                 1,053
                                                                 -------
        Total current liabilities                                  2,950
                                                                 -------

 Stockholders' equity:
   Common stock                                                       71
   Preferred stock                                                    21
   Additional paid-in capital                                     26,476
   Accumulated deficit                                           (22,130)
                                                                 -------
        Total stockholders' equity                                 4,438
                                                                 -------
 Total liabilities and stockholders' equity                      $ 7,388
                                                                 =======

                             See accompanying notes
<PAGE>
<TABLE>

                                               INSCI Corp
                                        STATEMENTS OF OPERATIONS
                                (in thousands, except per share amounts)
                                              (unaudited)

<CAPTION>
                                                THREE MONTHS ENDED               SIX MONTHS ENDED
                                                   SEPTEMBER 30,                   SEPTEMBER 30,
                                               1998            1997             1998           1997
                                              -------         -------          -------        ------- 
<S>                                           <C>             <C>              <C>            <C>    
Revenue
    Product                                   $   755         $   632          $ 2,520        $ 1,390
    Services                                    1,541           1,265            2,989          2,310
                                              -------         -------          -------        ------- 
        Total revenue                           2,296           1,897            5,509          3,700
                                              -------         -------          -------        ------- 
Cost of revenue
    Product                                       314             432              668            752
    Services                                      842             706            1,598          1,468
                                              -------         -------          -------        ------- 
        Total cost of revenue                   1,156           1,138            2,266          2,220
                                              -------         -------          -------        ------- 
Gross margin                                    1,140             759            3,243          1,480
                                              -------         -------          -------        ------- 
Expenses
    Sales and marketing                           950             736            2,003          1,744
    Product development                           618             440            1,089            918
    General and administrative                    475             405              860            849
                                              -------         -------          -------        ------- 
        Total expenses                          2,043           1,581            3,952          3,511
                                              -------         -------          -------        ------- 

Income (loss) from operations                    (903)           (822)            (709)        (2,031)
                                              -------         -------          -------        ------- 
Interest income, net                               20              48               45             94
                                              -------         -------          -------        ------- 
Net Income (loss)                                (883)           (774)            (664)        (1,937)
                                              =======         =======          =======        ======= 

Preferred stock dividends                        (135)           (222)            (298)          (466)

Net income (loss) applicable to 
  common shares                               $(1,018)        $  (996)         $  (962)       $(2,403)
                                              =======         =======          =======        ======= 

Net income (loss) per common share            $ (0.14)        $ (0.22)         $ (0.14)       $ (0.55)
                                              =======         =======          =======        ======= 

Weighted average common shares outstanding      7,143           4,495            6,956          4,394
                                              =======         =======          =======        ======= 

                                        See accompanying notes
</TABLE>
<PAGE>

                                   INSCI Corp
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
                                                            SIX MONTHS ENDED
                                                              SEPTEMBER 30,
                                                             1998        1997
                                                           -------     -------
Cash flows from operating activities:
  Net income (loss)                                        $  (664)    $(1,937)
  Reconciliation of net income (loss) to net cash
  used in operating activities:
    Depreciation and amortization                              199         182
    Amortization of deferred software costs                    445         524
    Stock options granted for services                          40
    Changes in assets and liabilities:
      Accounts receivable                                      378         845
      Prepaid expenses and other current assets                (30)        (50)
      Accounts payable                                        (185)       (269)
      Accrued and other liabilities                           (542)       (281)
      Deferred maintenance revenue                             139         (17)
      Other assets                                             (46)         13
                                                           -------     -------
Net cash used in operating activities                         (266)       (990)
                                                           -------     -------
Cash flows from investing activities:
    Additions to capitalized software development costs       (234)       (341)
    Additions to purchased software costs                     (209)       (355)
    Capital expenditures                                      (296)       (154)
                                                           -------     -------
Net cash used in investing activities                         (739)       (850)
                                                           -------     -------
Cash flows from financing activities:
    Proceeds from exercise of stock options                      2          10
                                                           -------     -------
Net cash provided by financing activities                        2          10
                                                           -------     -------

Net change in cash and cash equivalents                     (1,003)     (1,830)
Cash and cash equivalents at beginning of period             2,596       5,068
                                                           -------     -------
Cash and cash equivalents at end of period                 $ 1,593     $ 3,238
                                                           =======     =======

                             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 September 30, 1998 and the results of operations for the
three months and six months ended September 30, 1998 and 1997 and cash flows for
the six months ended September 30, 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
closing the Philippine subsidiary. This operation has been closed as of
September 30, 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 six month periods ended September 30,
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 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.

      A claim was asserted by holders of 187,500 Warrants, with respect to the
delay in the registration of the underlying shares related to the warrants. The
Company has agreed to resolve the claim by issuing an aggregate of 70,000 shares
of its common stock in consideration of the warrant holders surrendering their
warrants for cancellation by the Company. The warrants are exercisable at $3.50
per share. The Company has not finalized the settlement agreement.

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.
<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:

                                    THREE MONTHS ENDED          SIX MONTHS ENDED
                                       SEPTEMBER 30,             SEPTEMBER 30,
                                     1998        1997           1998       1997
                                     ----        ----           ----       ----
Revenue                                %           %              %          %
                                     ---         ---            ---        ---
    Product                           33          33             46         38
    Services                          67          67             54         62
                                     ---         ---            ---        ---
       Total revenue                 100         100            100        100
                                     ---         ---            ---        ---
Cost of revenue
    Product                           14          23             12         20
    Services                          37          37             29         40
                                     ---         ---            ---        ---
       Total cost of revenue          51          60             41         60
                                     ---         ---            ---        ---
Gross margin                          49          40             59         40
Expenses
    Sales and marketing               41          39             36         47
    Product development               27          23             20         25
    General and administrative        21          21             16         23
                                     ---         ---            ---        ---
       Total expenses                 89          83             72         95
                                     ---         ---            ---        ---

Income (loss) from operations        (40)        (43)           (13)       (55)

Interest income net                    2           2              1          3
                                     ---         ---            ---        ---
Net income (loss)                    (38)        (41)           (12)       (52)
                                     ===         ===            ===        ===

THREE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 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 September 30,1998 (the "current
quarter") was $2,296,000 and increased by 21% compared to revenue of $1,897,000
for the quarter ended September 30, 1997. The September quarter is historically
the Company's lowest revenue period, due primarily to the seasonal impact of
lower industrial purchases during the summer, both in the US and Europe. The
September 30, 1998 quarter was, however, the highest revenue of any September
quarter in the Company's history.

      Product revenue was $755,000 for the current quarter and increased by 19%
compared to product revenue of $632,000 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 $1,541,000 for the current quarter, and increased by
22% compared to revenues of $1,265,000 for the same period last year. This
increase reflects a growing installed base of customers that require integration
and support services.

      For the quarter ended September 30, 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 September 30, 1998 was $1,140,000 and
increased 50% compared to gross margin of $759,000 for the same quarter last
year. Gross margin as a percent of revenues was 49% for the current quarter
compared to 40% for the same quarter last year. The increase in gross margin is
primarily the result of increased services revenue for the current quarter.

      Cost of product revenue as a percentage of product revenue was 42% in the
current quarter as compared to 68% for the same quarter last year. Cost of
services revenue was 54% in the current quarter as compared to 56% for the same
quarter last year. The decrease in cost of revenues as a percent of revenues in
the current quarter for both product and services revenues reflects the
relatively fixed nature of several of the costs associated with these revenue
categories including amortization of capitalized software expenses and the
non-variable organizational infrastructure of the services organization. To the
degree 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 quarter ended September 30, 1998 were
$950,000 and increased by 29%, compared to expenses of $736,000 for the quarter
ended September 30, 1997. The expense increase reflects increases in commissions
related to revenue increases plus added marketing programs relative to
supporting potential increases in future revenues.

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
September 30, 1998 were $877,000 before capitalization of software expenses of
$259,000, for net product development expenses of $618,000. Gross development
expenses for the quarter ended September 30, 1997 were $788,000, before
capitalization of software expenses of $348,000, for net product development
expenses of $440,000. 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 $475,000 for the quarter ended
September 30, 1998 and increased by 17% compared to $405,000 for the same
quarter last year. This increase reflects expenses associated with the hiring of
a President as an addition to the Company's executive organization, combined
with expenses that were planned to be incurred during the Company's quarter
ended June 30, 1998, that were deferred until the current quarter.

INTEREST INCOME, NET

      Net interest income for the quarter ended September 30, 1998 was $20,000
compared to $48,000 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 loss for the quarter ended September 30, 1998 was $883,000 compared to
a net loss of $774,000 for the quarter ended September 30, 1997. The Company
expected to incur a loss for the current quarter due to the seasonal impact of
lower summer revenues. The 14% increase in the loss for the current period as
compared to the same period last year is primarily the result of increased
expenditures related to the Company's new products.

      SIX MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1997:

      Total revenue for the six months ended September 30, 1998 (the "current
period") was $5,509,000 and increased by 49% compared to revenue of $3,700,000
for the six months ended September 30, 1997. Product revenue was $2,520,000 for
the current period and increased by 81% compared to product revenue of
$1,390,000 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 indirect sales channels. Revenues sold through
indirect sales channels, which include Unisys, Xerox and other third party
selling partners, represented approximately 31% of the current period revenues
compared to 21% for the same period last year. 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 $2,989,000 for the current period, and increased
by 29% compared to revenues of $2,310,000 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 six months ended September 30, 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 six months ended September 30, 1998 was $3,243,000
and increased by 119% compared to gross margin of $1,480,000 for the same period
last year. Gross margin as a percent of revenues was 59% for the current period
compared to 40% for the same period last year. The increase in gross margin is
primarily the result of increased product revenue for the current period.

      Cost of product revenue as a percentage of product revenue was 27% in the
current period as compared to 54% for the same period last year. Cost of
services revenue was 53% in the current period as compared to 64% for the same
period last year. The decrease in cost of revenues as a percent of revenues in
the current period for both product and services revenues reflects the
relatively fixed nature of several of the costs associated with these revenue
categories including amortization of capitalized software expenses and the
non-variable organizational infrastructure of the services organization. To the
degree 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 period ended September 30, 1998 were
$2,003,000 and increased by 15%, compared to expenses of $1,744,000 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 36% for the current period compared to 47% 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 six months ended September 30,
1998 were $1,683,000, before capitalization of software expenses of $594,000,
for net product development expenses of $1,089,000. Gross product development
expenses for the six months ended September 30, 1997 were $1,614,000, before
capitalization of software expenses of $696,000, for net product development
expenses of $918,000. 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 $860,000 for the six months ended
September 30, 1998 and increased by 1% compared to $849,000 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,
offset by decreases in professional fees as the Company's internal staff
performed functions that were provided by outside services in the prior fiscal
year.

INTEREST INCOME, NET

      Net interest income for the period ended September 30, 1998 was $45,000
compared to $94,000 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 six months ended September 30, 1998 was $664,000 compared
to a net loss of $1,937,000 for the six months ended September 30, 1997. The
decrease in loss in the current period reflects revenues that grew by 49%
compared to cost and expense increases of 10%.

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 is
assessing 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 expects to successfully implement the systems and programming
changes necessary to address the 2000 issues, and does not believe that the cost
of such actions will have a material effect on the Company's results of
operations or financial condition. 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 six months ended
September 30, 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 September 30, 1998 the Company had $1,593,000 of cash and working
capital of $1,353,000 in comparison to $3,238,000 of cash and working capital of
$2,666,000 as of September 30, 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 $2,526,000 with weighted days outstanding of
98 as of September 30, 1998 compared to receivables of $1,646,000 with weighted
days outstanding of 77, as of September 30, 1997. The Company frequently
provides extended payment terms on larger enterprise level sales, which may
require integration services over several months. The increase in collection
days reflects an increased mix of extended payment terms. The Company expects
payment days to revert to the normal sixty to seventy day level over the next
several months.

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

                                                             SIX MONTHS ENDED
                                                               SEPTEMBER 30,
                                                            1998          1997
                                                            ----          ----
Cash provided by (used in)
  Operating activities                                    $  (266)      $  (990)
  Investing activities                                       (739)         (850)
  Financing activities                                          2            10
                                                          -------       -------
    Increase(decrease) in cash and cash equivalents       ($1,003)      ($1,830)
                                                          =======       =======
Cash and cash equivalents at end of period                $ 1,593       $ 3,238

      Cash use decreased by $827,000 for the six months ended September 30, 1998
compared to the same period last year, primarily as the result of a reduction in
operating loss for the current period. The Company used cash of $266,000 in
operating activities for the six months ended September 30, 1998. Net cash used
in investing activities was $739,000 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.

      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. The stock options 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, will be 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.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (A)  EXHIBITS.

                 Exhibit 27, Financial Data Schedule

        (B)  REPORTS ON FORM 8-K.

                 No Form 8-K's were filed by the Company during the quarter
                 ended September 30, 1998

                                   SIGNATURE

      Pursuant to the requirements of the Securi-ties 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:  October 30, 1998               By:  /S/ ROGER C. KUHN
                                          -----------------------------
                                      Roger C. Kuhn
                                      Vice President and Chief Financial Officer