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: June 30, 2004

[ ]      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)

                         One Research Drive, Suite 200B
                              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 AUGUST 4, 2004
 ----------------------------                        --------------------------
 Common Stock, par value $.10                                 5,992,287

Transitional Small Business Disclosure Format (check one)
Yes     No  X
   ---     ---



                                       1
<PAGE>

                                   INSCI CORP.

                                      INDEX
<TABLE>
<CAPTION>

                                                                                                         PAGE
PART I   FINANCIAL INFORMATION

<S>                                                                                                      <C>
Item 1.   Financial Statements

Consolidated Balance Sheet as of June 30, 2004                                                             3

Consolidated Statements of Operations for the Three Months
     Ended June 30, 2004 and 2003                                                                          5

Consolidated Statement of Stockholders' Equity for the Three Months
     Ended June 30, 2004                                                                                   6

Consolidated Statements of Cash Flows for the Three Months
     Ended June 30, 2004 and 2003                                                                          7

Notes to Consolidated Financial Statements                                                                 8

Item 2.   Management's Discussion and Analysis or Plan of Operation                                       14

Item 3.   Controls and Procedures                                                                         23


PART II  OTHER INFORMATION

Item 1.   Legal Proceedings                                                                               23

Item 2.   Change in Securities                                                                            23

Item 3.   Defaults Upon Senior Securities                                                                 23

Item 4.   Submission of Matters to a Vote of Security Holders                                             23

Item 5.   Other Information                                                                               24

Item 6.   Exhibits and Reports on Form 8-K                                                                24

Signature                                                                                                 24

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002                                                                                25

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002                                                                                26


</TABLE>



                                       2
<PAGE>


                                   INSCI CORP.
                           CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 2004
                                   (UNAUDITED)
                    (in thousands, except per share amounts)


                                    ASSETS
                                    ------
Current assets:
    Cash                                                                 $  250
    Accounts receivable, net of allowance for doubtful accounts of $10    2,049
    Prepaid expenses and other current assets                               506
                                                                         ------
          Total current assets                                            2,805

Property and equipment, net                                               1,767
Capitalized software                                                        616
Goodwill, net                                                             1,223
Other assets                                                                174
                                                                         ------
                                                                         $6,585
                                                                         ======






THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.




                                       3
<PAGE>

                                   INSCI CORP.
                           CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 2004
                                   (UNAUDITED)
                    (in thousands, except per share amounts)


                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable and accrued expenses                              $  2,708
    Advances against accounts receivable sold with recourse                 833
    Deferred revenue                                                      2,357
    Capital leases, current portion                                          67
                                                                       --------
          Total current liabilities                                       5,965
                                                                       --------
Long term liabilities:
    Deferred rent to future periods                                         278
    Capital leases, net of current portion                                   35
                                                                       --------

          Total long term liabilities                                       313
                                                                       --------

Commitments and contingencies

          Total liabilities                                               6,278
                                                                       --------
Stockholders' equity:
    Series C Convertible Preferred Stock, $.01 par value,
      authorized 6,015 shares: issued and outstanding 2,683                  27
    Series B Convertible Preferred Stock, $.01 par value,
      authorized  2,317 shares: issued and outstanding 123                    1
    Series A Convertible Preferred Stock, $.01 par value,
      authorized 1,668 shares: issued none                                 --
    8% Convertible  Preferred Stock, $.01 par value,
      originally authorized 0 shares: issued and outstanding 74               1
    Common stock, $.10 par value, authorized 185,000 shares:
      issued and outstanding 5,992                                          599
    Additional paid-in capital                                           54,243
    Accumulated deficit                                                 (54,564)
                                                                       --------
          Total stockholders' equity                                        307
                                                                       --------
                                                                       $  6,585
                                                                       ========


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.



                                       4
<PAGE>


                                   INSCI CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    THREE MONTHS ENDED JUNE 30, 2004 AND 2003
                                   (UNAUDITED)
                    (in thousands, except per share amounts)


                                                        2004             2003
                                                       --------        --------
Revenues
  Product                                              $  1,225        $  1,078
  Services                                                1,758           1,000
                                                       --------        --------
    Total revenues                                        2,983           2,078
                                                       --------        --------
Cost of revenues
  Product                                                    63              27
  Services                                                  827             273
                                                       --------        --------

    Total cost of revenues                                  890             300
                                                       --------        --------

Gross profit                                              2,093           1,778
                                                       --------        --------
Expenses
  Sales and marketing                                       741             656
  Product development                                       612             610
  General and administrative                                614             347
                                                       --------        --------
                                                          1,967           1,613
                                                       --------        --------
Operating income                                            126             165

Interest expense, net                                       (26)           (107)
                                                       --------        --------

Net income                                                  100              58

Preferred stock dividends                                  (145)            (41)
                                                       --------        --------
Net income applicable, net (loss) attributable
  to common stockholders                                 $  (45)       $     17
                                                       =======         ========

Earnings (loss) per common share:
  Basic                                                $ (0.007)       $  0.003
                                                       ========        ========

  Diluted                                              $ (0.007)       $  0.002
                                                       ========        ========

Weighted average shares outstanding:
  Basic                                                   5,992           5,276
                                                       ========        ========

  Diluted                                                 5,992          11,368
                                                       ========        ========


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.



                                       5
<PAGE>


                                   INSCI CORP.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        THREE MONTHS ENDED JUNE 30, 2004
                                   (UNAUDITED)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                       Additional    Accum-
                                       Preferred Stock            Common Stock          Paid-in      ulated
                                     Shares      Amount        Shares       Amount      Capital      Deficit         Total
                                    --------     --------     --------     --------     --------     --------      --------
<S>                                 <C>          <C>          <C>          <C>          <C>          <C>           <C>
BALANCE, MARCH 31, 2004                2,880     $     29        5,992     $    599     $ 54,243     $(54,519)     $    352

  Series B preferred dividend           --           --           --           --           --            (41)          (41)
  Series C preferred dividend           --           --           --           --           --           (104)         (104)
  Net income                            --           --           --           --           --            100           100
                                    --------     --------     --------     --------     --------     --------      --------
BALANCE, JUNE 30, 2004                 2,880     $     29        5,992     $    599     $ 54,243     $(54,564)     $    307
                                    ========     ========     ========     ========     ========     ========      ========
</TABLE>



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.




                                       6
<PAGE>

                                   INSCI CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    THREE MONTHS ENDED JUNE 30, 2004 AND 2003
                                   (UNAUDITED)
                                 (in thousands)


                                                            2004       2003
                                                         ---------   ---------

Cash flows from operating activities:
  Net income                                               $ 100        $  58
  Reconciliation of net income to net cash
   provided by operating activities:
  Depreciation and amortization                              103           27
  Non-cash restructuring and other charges                  --           (100)
  Deferred rent to future periods                             93         --
  Changes in assets and liabilities:
      Accounts receivable                                     79          693
      Prepaid expenses and other current assets             (148)         (49)
      Other assets                                            70           94
      Accounts payable and accrued expenses                  588         (229)
      Deferred revenue                                       (17)         (88)
                                                           -----        -----

Net cash provided by operating activities                    868          406
                                                           -----        -----
Cash flows from investing activities:
  Capitalized software                                      (374)        --
  Capital expenditures                                      (391)         (14)
                                                           -----        -----

Net cash used in investing activities                       (765)         (14)
                                                           -----        -----
Cash flows from financing activities:
  Payments on long term debt                                --            (86)
  Payments on capital leases                                 (25)        --
  Net advances (repayments) from sale of receivables        (579)        (242)
  Series B Preferred dividends paid                         --            (41)
                                                           -----        -----
Net cash used in financing activities                       (604)        (369)
                                                           -----        -----
Net (decrease) increase in cash                             (501)          23
Cash, beginning of period                                    751          771
                                                           -----        -----

Cash, end of period                                        $ 250        $ 794
                                                           =====        =====



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.




                                       7
<PAGE>


                                   INSCI CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


NATURE OF BUSINESS AND BASIS OF PRESENTATION

         The consolidated financial statements included in this report have been
prepared by INSCI Corp., (the "Company" or "INSCI"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America 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 for the fiscal year ended March 31, 2004.
The results of the three months ended June 30, 2004 may not be indicative of the
results that may be expected for the year ending March 31, 2005.

         INSCI Corp. (OTCBB: INCC) is a leading provider of integrated
enterprise content management (ECM) solutions. INSCI's proven technology
provides a solid foundation for managing the full spectrum of enterprise
content, from documents to e-mail, graphics to video. By bringing digital assets
and business content together through a unified Web services platform, INSCI
readily enables content use in e-commerce, customer service, brand management
and regulatory compliance.

         In the opinion of the management of the Company, the accompanying
unaudited financial statements reflect all adjustments (of a normal and
recurring nature) that are necessary to present fairly the financial position of
the Company as of June 30, 2004 and the results of operations and cash flows for
the three months ended June 30, 2004 and 2003.

         The accompanying consolidated financial statements for the three months
ended June 30, 2004 and 2003 include the operations of INSCI and its
wholly-owned subsidiaries, WCORP, Inc. ("WCORP") and Lognet 2000, Inc.
("Lognet"). WCORP was established August 26, 2003 to acquire certain assets and
liabilities of WebWare(R) Corporation ("WebWare"). WCORP acquired certain assets
and assumed certain liabilities of WebWare on September 5, 2003. Additional
subsidiaries of the Company are InfiniteSpace.com, Corp. ("InfiniteSpace"), The
Internet Broadcasting Company, Inc. ("IBC") and INSCI (UK) Limited, all of which
are no longer active. All significant intercompany transactions and balances
have been eliminated in the preparation of these financial statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In April 2004, the Financial Accounting Standards Board's ("FASB")
Emerging Issues Task Force ("EITF") reached a consensus on EITF No. 03-06,
PARTICIPATING SECURITIES AND THE TWO-CLASS METHOD UNDER FASB STATEMENT NO. 128,
EARNINGS PER SHARE. EITF 03-06 addresses a number of questions regarding the
computation of earnings per share by companies that have issued securities other
than common stock that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares dividends on its
common stock. The issue also provides further guidance in applying the two-class
method of calculating earnings per share, clarifying what constitutes a
participating security and how to apply the two-class method of computing
earning per share once it is determined that a security is participating,
including how to allocate undistributed earnings to such a security. EITF 03-06
is effective for fiscal periods beginning after March 31, 2004. The adoption of
EITF 03-06 is not expected to have a material effect on our financial position
or results of operations.

         In December 2003, the FASB issued a revised FASB Interpretation ("FIN")
No. 46, CONSOLIDATION OF VARIABLE INTEREST Entities. FIN No. 46R addresses
consolidation by business enterprises of variable interest entities and
significantly changes the application of consolidation policies to variable
interest entities and thus, improves comparability between enterprises engaged
in activities when those activities are conducted through variable interest
entities. The Company does not hold any variable interest entities.



                                       8
<PAGE>


         In December 2003, the Securities and Exchange Commission issued SAB No.
104, REVENUE RECOGNITION that supercedes SAB No. 101, REVENUE RECOGNITION IN
FINANCIAL STATEMENTS. The primary purpose of SAB No. 104 is to rescind
accounting guidance contained in SAB No. 101 related to multiple element
arrangements, superceded as a result of the issuance of EITF 00-21, ACCOUNTING
FOR REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES. The guidance contained in
SAB No. 104 reflects the issuance of EITF 00-21, but the revenue recognition
principles remaining largely unchanged. As we have already incorporated EITF
00-21 and SAB 101 into our revenue recognition policies, the adoption of SAB 104
did not have a significant impact on our financial statements.

ACQUISITION

         On September 5, 2003, the Company's wholly owned subsidiary, WCORP,
acquired certain assets and assumed certain liabilities of WebWare Corporation
("WebWare") from Diablo Management Group, as assignee for the benefit of
creditors of WebWare. The total purchase price was $1.3 million. Additionally,
the Company incurred closing costs of $127,000. The Company paid cash of
$500,000 and issued 716,204 shares of its common stock valued at $800,000. The
Company has granted registration rights for these shares, which are subject to a
lock up agreement. This transaction has been accounted for as a purchase and
accordingly, the operating results have been included in the Company's
consolidated results of operations from the date of acquisition.

The components of the purchase price and allocation are as follows (in
thousands):

PURCHASE PRICE:
      Cash                                                               $  500
      716,204 shares of INSCI common stock                                  800
      Acquisition costs                                                     127
                                                                         ------

           Total consideration plus acquisition costs                    $1,427
                                                                         ======
ALLOCATION OF PURCHASE PRICE:
      Fair value of assets acquired, net of $783 in liabilities assumed  $  204
      Purchase price in excess of fair value of net assets acquired
        allocated to goodwill                                             1,223
                                                                         ------
           Total                                                         $1,427
                                                                         ======

         Goodwill, in accordance with SFAS No. 142, will be tested for
impairment annually and whenever there is an impairment indicator. No impairment
charges have been recorded as of June 30, 2004.

         Unaudited proforma operating results for the three months ended June
30, 2004 and 2003 for the Company, assuming the purchase of the assets of
WebWare occurred on March 31, 2003, are as follows (in thousands, except per
share amounts):


                                                     THREE MONTHS ENDED
                                                          JUNE 30,
                                                    2004            2003
                                                -----------     -----------

Revenue                                             $ 2,983         $ 2,527
Net income (loss)                                       100          (1,167)
Preferred stock dividends                              (145)            (41)
Net income applicable, net (loss) attributable
  to common stockholders                                (45)         (1,208)
Basic and diluted loss per share from continuing
  operations                                         (0.007)         (0.229)




                                        9
<PAGE>

EARNINGS (LOSS) PER COMMON SHARE

         Basic earnings (loss) per common share was computed by dividing net
income (loss) applicable to common shares by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss) per common
share was calculated by dividing net income (loss) by the sum of the weighted
average number of common shares outstanding plus all additional common shares
that would have been outstanding if potentially dilutive common shares had been
issued.

         For the three months ended June 30, 2004, approximately 16.4 million
shares from stock options, warrants and convertible securities were excluded due
to their anti-dilutive effect. For the three months ended June 30, 2003,
approximately 25.6 million shares from stock options, warrants and convertible
securities were excluded because their exercise price exceeded market value.

  A reconciliation from the number of shares used in the
  basic earnings (loss) per share computation to the
  number of shares used in the diluted earnings (loss)    THREE MONTHS ENDED
  per share computation is as follows:                        JUNE 30,
                                                         2004           2003
                                                      -----------   -----------
Weighted average shares of common stock
  outstanding during the period - Basic                     5,992         5,276
  8% Convertible Preferred Stock                             --             142
Weighted average common equivalent shares due to
   stock options and options                                                  1
Series B Convertible Preferred Stock                         --           5,949
                                                           ------        ------
                                                            5,992        11,368
                                                           ======        ======

MAJOR CUSTOMERS

         For the three months ended June 30, 2004, sales to one customer
accounted for approximately 13% of total revenue and accounted for 12% of the
Company's accounts receivable at June 30, 2004. For the three months ended June
30, 2003, sales to three of our customers accounted for approximately 17%, 15%
and 14% of total revenues. These three customers accounted for 27%, 18% and 22%,
respectively, of the Company's accounts receivable at June 30, 2003.

SEGMENT INFORMATION

         The Company operates as a single reportable segment as a developer and
distributor of software solutions for the enterprise content management (ECM)
market.

Revenue was derived from customers in the following geographic
areas (in thousands)

                                           THREE MONTHS ENDED
                                                JUNE 30,
                                        2004              2003
                                    -------------   -------------

North America                            $ 2,713          $ 1,836
Europe                                       185              119
Other                                         85              123
                                    -------------    -------------
                                         $ 2,983          $ 2,078
                                    =============    =============



ADVANCES AGAINST RECEIVABLES SOLD WITH RECOURSE

         During February 2004, the Company entered into a new financing
agreement, which replaced its existing arrangement. This agreement provides for
the financing of all eligible accounts receivable of the Company with recourse.
The agreement calls for advances of 80% of the face amount of the eligible
account with fees of 0.25% per annum and interest of 1.50% over prime on a per
annum basis. The Company granted a security interest in all of the Company's
assets and accounts receivable to the bank.



                                       10
<PAGE>


SERIES C CONVERTIBLE PREFERRED STOCK

         On December 31, 2003, the Company entered into an agreement with CSSMK,
LLC ("CSSMK"), an entity which is majority owned by Henry F. Nelson, the
Company's President and Chief Executive Officer, wherein CSSMK purchased 257,785
shares of Series C Convertible Preferred Stock ("Series C Preferred") for the
sum of $500,000 or $1.9396 per share. The 257,785 shares of Series C Preferred
are convertible on a 2:1 basis into 515,570 shares of common stock at the option
of the holder. In connection with this agreement, CSSMK entered into a
Stockholder's Agreement with SCP Private Equity Partners II, LP ("SCP").

           On September 5, 2003, the Company and SCP entered into an agreement
wherein SCP agreed to purchase 1,546,711 shares of Series C Preferred Stock in
the Company at a price of $1.9396 per share for a total of $3 million. The
1,546,711 shares of Series C Preferred are convertible on a 2:1 basis into
3,093,422 shares of common stock at the option of the holder.


         Series C Preferred provides for annual cumulative dividends at 8% of
the original issue price of $1.9396 per share, payable semi-annually in cash or
in additional shares of Series C Preferred at the company's option.

         Holders of shares of Series C Preferred shall be entitled to vote
equally with the shares of the Company's common stock and not as a separate
class, at any annual or special meeting of stockholders of the Company on the
following basis: each holder of shares of Series C Preferred shall be entitled
to such number of votes as shall be equal to the number of shares of Common
Stock into which the holder's Series C Preferred shares would convert
immediately after the close of business on the record date fixed for such
meeting. In addition, the holders of shares of Series C Preferred shall be
entitled as a separate single class to elect two members to the Board at each
election of directors.


         In the event of any liquidation, whether voluntary of involuntary,
before any distribution or payment shall be made to any holders of any junior
stock, the holders of Series C Preferred shall be entitled to be paid out of the
assets of the Company an amount per share equal to the greater of (a) 200% of
the Series C original issue price plus an amount equal to all accrued and unpaid
dividends or (b) the price per share a holder of Series C Preferred would have
been entitled to receive had all shares of outstanding preferred stock been
converted into common stock immediately preceding such liquidation. The Series C
Preferred provides for anti-dilution protection. All outstanding shares of
Series C Preferred may be redeemed, out of legally available funds as determined
by the Company, if certain requirements and or conditions are met on September
1, 2009.


         As a part of the investment agreement with SCP for the purchase of the
Series C Preferred, the Company amended its agreements with Selway Partners LLC
("Selway") and CIP Capital LP ("CIP") with respect to the rights associated with
the Company's Series A and Series B convertible preferred stock. Selway is an
affiliate of SCP in that SCP is the majority shareholder of Selway and CIP is an
affiliate of SCP in that Mr. Winston Churchill is a managing partner in both.

SERIES B CONVERTIBLE PREFERRED STOCK

         On December 8, 2003, the Company filed an Amended and Restated
Certificate of Designation of the Preferred Stock in connection with the
designation of the rights and preferences for the Series B Convertible Preferred
Stock ("Series B Preferred"), which modified and clarified the rights and
preferences of the Company's Series B Preferred.

         Series B Preferred is convertible on a 70:1 basis. As of December 31,
2003, the Company has issued 123,344 shares of its Series B Preferred, which is
convertible into 8,634,080 shares of the Company's common stock. This modifies
the earlier designations in which Series B Preferred was convertible as follows:
(i) such number of shares of common stock as represents the "Current Value
Percentage" (as defined) of total issued and outstanding common stock as of the
date of conversion, plus (ii) such additional shares of common stock issuable
after the date of conversion as may be necessary to maintain such Current Value
Percentage upon the conversion or exercise of other convertible instruments.



                                       11
<PAGE>



         Series B Preferred provides for annual cumulative dividends at 1.915%
of the original issue price of $67.886 per share, payable monthly in cash or in
additional shares of Series C Preferred at the holder's option.

         Holders of shares of Series B Preferred shall be entitled to vote
equally with the shares of the Company's common stock and not as a separate
class, at any annual or special meeting of stockholders of the Company on the
following basis: each holder of shares of Series B Preferred shall be entitled
to such number of votes as shall be equal to the number of shares of Common
Stock into which the holder's Series B Preferred shares would convert
immediately after the close of business on the record date fixed for such
meeting. In addition, the holders of shares of Series B Preferred shall be
entitled as a separate single class to elect two members to the Board at each
election of directors.

         In the event of any liquidation, whether voluntary of involuntary,
before any distribution or payment shall be made to any holders of any junior
stock, the holders of Series B Preferred shall be entitled to be paid out of the
assets of the Company an amount per share equal to the greater of (a) 51.6% of
the Series B original issue price, which is equivalent to 350% of the original
investment, plus an amount equal to all accrued and unpaid dividends or (b) the
price per share a holder of Series B Preferred would have been entitled to
receive had all shares of outstanding preferred stock been converted into common
stock immediately preceding such liquidation. The Series B Preferred provides
for anti-dilution protection. All outstanding shares of Series B Preferred may
be redeemed, out of legally available funds as determined by the Company, if
certain requirements and or conditions are met on March 31, 2006.

SERIES A CONVERTIBLE PREFERRED STOCK

         On December 8, 2003, the Company filed an Amended and Restated
Certificate of Designation of the Preferred Stock in connection with the
designation of the rights and preferences for the Series A Convertible Preferred
Stock ("Series A Preferred"), which clarified the rights and preferences of the
Company's Series A Preferred.

         The Company has not issued any shares of Series A Preferred. Series A
Preferred, when issued, would be convertible into common stock on a 1.181818:1
basis. Series A Preferred provides for annual cumulative dividends at an annual
floating rate equal to prime plus 2.5% of the original issue price of $1.30 per
share, payable at the end of each fiscal quarter in shares of Series A
Preferred.

         Holders of shares of Series A Preferred shall be entitled to vote
equally with the shares of the Company's common stock and not as a separate
class, at any annual or special meeting of stockholders of the Company on the
following basis: each holder of shares of Series A Preferred shall be entitled
to such number of votes as shall be equal to the number of shares of Common
Stock into which the holder's Series A Preferred shares would convert
immediately after the close of business on the record date fixed for such
meeting. In addition, the holders of shares of Series A Preferred shall be
entitled as a separate single class to elect three members to the Board at each
election of directors.

         In the event of any liquidation, whether voluntary of involuntary,
before any distribution or payment shall be made to any holders of any junior
stock, the holders of Series A Preferred shall be entitled to be paid out of the
assets of the Company an amount per share equal to the greater of (a) the Series
A original issue price plus an amount equal to all accrued and unpaid dividends
or (b) the price per share a holder of Series A Preferred would have been
entitled to receive had all shares of outstanding preferred stock been converted
into common stock immediately preceding such liquidation. The Series A Preferred
provides for anti-dilution protection. The Series A Preferred may be redeemed at
any time after five years from date of issuance, out of legally available funds
as determined by the Company, for cash at $1.30 per share (subject to adjustment
as defined) plus an amount equal to the amount of all declared but unpaid
dividends if certain requirements and or conditions are met.



                                       12
<PAGE>


RELATED PARTY TRANSACTIONS

         The Company accrued dividends of $104,000 on its Series C Preferred,
held by SCP, CSSMK, Selway and CIP, related parties, and accrued dividends of
$41,000 on its Series B Preferred, held by Selway and CIP for the period ended
June 30, 2004. Accrued dividends are included under the caption of accrued
expenses as of June 30, 2004 in the accompanying consolidated balance sheet.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                           THREE MONTHS ENDED
                                                JUNE 30,
                                        2004            2003
                                    ------------    -----------

Cash paid for interest                    $   26        $   115


STOCK-BASED COMPENSATION

         The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations in accounting for its employee stock options. Under APB No. 25,
when the exercise price of employee stock options is equal to or greater than
the market price of the underlying stock on the date of grant no compensation
expense is recorded. The Company discloses information relating to the fair
value of stock-based compensation awards in accordance with SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. No stock options or warrants were
granted to employees during the three months ended June 31, 2004 and 2003.

COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

         The Company is a defendant in an action commenced by one of its
customers for the return of certain pre-petition payments made prior to the
customer's bankruptcy petition in the amount of approximately $121,000. The
Company is contesting the action and is asserting a number of affirmative
defenses on its behalf. The outcome of these proceedings cannot be determined
with certainty. The Company does not believe that the resolution of this matter
will have a material adverse effect on the Company's consolidated financial
position or results of operations.




                                       13
<PAGE>


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

         The following discussion of management's analysis of operations for the
three months ("First Quarter of Fiscal 2005") ended June 30, 2004 and the three
months ("First Quarter of Fiscal 2004") ended June 30, 2003 should be read in
conjunction with the financial statements and notes thereto contained elsewhere
in this report. The following discussion contains forward-looking statements
that reflect the Company's business, plans, estimates and beliefs. Our results
could differ materially from those discussed in the forward-looking statements.

         INSCI is a leading provider of solutions to the enterprise content
management (ECM) market. INSCI's highly scalable solutions provide storage,
access and presentment for mission-critical documents, reports, statements,
e-mail and high value digital assets necessary for business functions or
regulatory compliance. The industry recognized highly scaleable archive solution
supports high volume ingestion, digital asset preservation, and on-line
presentment and delivery functions via internal networks or via the World Wide
Web. With the addition of web-enabled capabilities, INSCI's customers can take
advantage of e-commerce to improve communication, customer satisfaction, and
productivity while decreasing costs. For over ten years INSCI has been
recognized for its ability to capture and store high volumes of electronic
information. The Company recently acquired certain assets and liabilities of
WebWare Corp., a leading provider of content management solutions for the
digital asset management (DAM) market. These advanced solutions offer broad
management capability for rich media content such as video, voice, audio,
graphics and related media.

         INSCI was originally founded to capture and preserve high volumes of
mission critical business information. The Company's product offering includes
web-based presentment capabilities for documents such as bank statements, 401(k)
statements, customer and vendor statements, explanation of benefits (EOB's), and
transaction confirmation documents. The Company has expanded its product
offerings to include e-mail archiving and notification capabilities as well as
the ability to capture, store and deliver high value digital assets such as
spreadsheets, word documents, presentations and schedules. This offers our
customers the ability to provide increased internal communication, productivity
improvements and improved customer satisfaction and communication. With the
addition of the WebWare ActiveMedia(TM) product offering the Company has
substantially expanded its digital archive and rich media asset management
capabilities and supports business efforts such as video and voice on demand,
product launches, global marketing efforts, rich asset management and brand
management.

         The ESP+(TM) Solutions Suite provides a highly scalable digital content
repository that is a robust platform to meet the demands of high-volume
environments that require the preservation of wide-ranging digital assets
(legacy computer output, documents, e-mail correspondence, MS Office files,
imaged documents and digital voice documents). Its three-tier scalable
architecture is designed to meet the unique demands of large-scale
implementations, with Java-based API's for seamless integration with third party
applications such as Websites, Customer Relationship Management (CRM) service
providers and others. The ESP+ Solutions Suite manages billions of documents for
decades of immediate availability and supports Internet-based access to this
content by thousands of concurrent users.

           ActiveMedia provides a secure, central repository where rich media
files such as images, documents, video, animation, voice and other formats of
rich media are organized and stored, and may be delivered to desktops, websites,
print publications, or video on demand as they are needed. The application is
offered as a standard licensed application and is also available in a web-based
hosted environment on a subscription basis. The flexible J2EE-based design
offers a scalable three-tier architecture that takes advantage of industry
standard Web Services description language and a standard operating access
protocol (SOAP) application program interface (API). The advanced architecture
offers substantially increased market opportunities through the seamless
integration with other third party application services providers.




                                       14


<PAGE>


         We distribute our products through a combination of a direct sales
force and through Alliance Partners. Revenue is net of discounts and allowances
given to Alliance Partners. In Fiscal 2004, 2003 and 2002 we derived
approximately 48%, 47% and 43%, respectively, of our total revenues from
Alliance Partners. Revenues consist of one time license fees, service revenues
and maintenance revenues. Sales to end-users generally include a software
license, professional services and maintenance contracts. Additionally, the
ActiveMedia product is also offered under a hosting contract. ASP-enabling sales
typically include monthly recurring revenues that are recognized as earned.
INSCI also markets and licenses products on an international basis through its
Alliance Partners. INSCI's strategic relationships include Unisys Corporation,
Xerox Corporation, PFPC, EMC Corporation, AGFA and Ascent Media. We consider the
development of a successful Alliance Partner program as a key element for our
future growth.

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
                                                     JUNE 30,
                                                2004         2003
                                                  %            %
                                              -------      -------
Revenues
  Product                                        41           52
  Services                                       59           48
                                               ----         ----
    Total revenues                              100          100
                                               ----         ----
Cost of revenues
  Product                                         2            1
  Services                                       28           13
                                               ----         ----

    Total cost of revenues                       30           14
                                               ----         ----
Gross profit                                     70           86
                                               ----         ----
Expenses
  Sales and marketing                            25           32
  Product development                            20           29
  General and administrative                     21           17
                                               ----         ----

    Total expenses                               66           78
                                               ----         ----

Operating income                                  4            8
Interest expense, net                            (1)          (5)
                                               ----         ----
Net income                                        3            3
                                               ====         ====

The following tables compare total revenues for the periods indicated (in
thousands):

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED JUNE 30,
                                                  2004              2003      % CHANGE
                                            -----------        ---------      ----------
<S>                                         <C>                <C>            <C>
Product revenues                                $ 1,225          $ 1,078             14%
Professional services                               428              150            185
Maintenance and hosting contract revenues         1,330              850             56
                                            -----------        ---------      ---------

      Total revenues                            $ 2,983          $ 2,078             44%
                                            ===========        =========      =========
</TABLE>






                                       15
<PAGE>



FIRST QUARTER OF FISCAL 2005 AS COMPARED TO FIRST QUARTER OF FISCAL 2004:

REVENUES

         Revenues for the First Quarter of Fiscal 2005 totaled $3.0 million and
increased by $905,000 or 44% compared to revenues of $2.1 million for the First
Quarter of Fiscal 2004. Product revenues increased by $147,000 or 14% to $1.2
million in the First Quarter of Fiscal 2005 as compared to $1.1 million in the
First Quarter of Fiscal 2004. Professional service revenues of $428,000
increased $278,000, or 185%, in the First Quarter of Fiscal 2005 as compared to
$150,000 in the First Quarter of Fiscal 2004. Maintenance and hosting revenues
increased $480,000, or 56%, compared to the First Quarter of Fiscal 2004.
Maintenance contract revenues are earned ratably over the term of the contract
commencing upon receipt of payment or when other acceptance is received. Hosting
contract revenues are earned ratably over the period invoiced, typically monthly
or quarterly.


         For the First Quarter of Fiscal 2005 we received 13% of our total
revenues from one customer. For the First Quarter of Fiscal 2004 we received
17%, 15% and 14% of our total revenues from three customers.

GROSS PROFIT

         Gross profit for the First Quarter of Fiscal 2005 was $2.1 million and
increased $315,000 or 18% compared to gross profit of $1.8 million for the prior
year period. The increase in aggregate gross profit is related to the increase
in product and service revenue as previously noted partially offset by increased
service expenses and costs associated with the hosting center. Gross margin
decreased to 70% for the First Quarter of Fiscal 2005 from 86% for the prior
year period. The decrease in the gross margin percentage is primarily
attributable to the hosting center which operates at a lower gross margin
percentage.

SALES AND MARKETING


         Sales and marketing expenses for the First Quarter of Fiscal 2005 were
$741,000, an increase of $85,000 or 13% from the prior year period. Sales and
marketing expenses expressed as a percentage of sales decreased to 25% in the
first quarter of Fiscal 2005 compared to 32% in the first quarter of Fiscal
2004. The increase of $85,000 reflects higher commission expenses as a
consequence of increased revenues and additional marketing expenses, including
expenses associated with a Company branding effort.

PRODUCT DEVELOPMENT

         Product development expenses, net of capitalized software, were
$612,000 in the First Quarter of Fiscal 2005 compared to $610,000 in the prior
year period. The Company capitalized $374,000 of product development costs
associated with the development of a next generation application. This
application achieved technological feasibility in the fourth quarter of Fiscal
2004.


GENERAL AND ADMINISTRATIVE

         General and administrative expenses were $614,000 for the First Quarter
of Fiscal 2005 as compared to $347,000 for the prior year period, an increase of
$267,000 or 77%. The Company acquired the WebWare assets on September 5, 2003
and the general and administrative expenses attributable to the WebWare related
operations for the First Quarter of Fiscal 2005 were $191,000. General and
administrative expenses, exclusive of WCORP, increased by $76,000 for the First
Quarter of Fiscal 2005 as compared to the prior year period. Expressed as a
percentage of revenues, G&A expenses increased to 21% for the first quarter of
Fiscal 2005, compared to 17% for the first quarter of Fiscal 2004.

         The Company moved to a new corporate facility that includes a Data
Hosting facility on March 1, 2004. The new lease provided for rent abatement
through February 2005, although such abatement has been amortized over the
entire life of the lease. The Company is obligated for rent expense on the prior
facility through September 2004. Accordingly, the Company has recorded rent
expense for both facilities in the period ended June 30, 2004.




                                       16
<PAGE>


INTEREST EXPENSE, NET

         Interest expense for the First Quarter of Fiscal 2005 was $26,000, a
decrease of $81,000 or 76% from the prior year period. The decrease was due to
the lower level of borrowings in the current fiscal quarter as $1.9 million of
convertible debt was converted to Series C Convertible Preferred Stock as of
March 31, 2004, as well as a lower interest rate on operating debt as a result
of the financing arrangement with Silicon Valley Bank.

LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 2004, the Company had $250,00 of cash and a working
capital deficit of $3.2 million in comparison to $794,000 of cash and working
capital deficit of $1.9 million at June 30, 2003. As of March 31, 2004, the
Company had $751,000 of cash and working capital deficit of $2.6 million.
Accounts receivable were $2.0 million at June 30, 2004 and $2.1 million at March
31, 2004. For the quarter ended June 30, 2004, the days sales outstanding (DSO)
was 61 days compared to 69 days for the quarter ended March 31, 2004 and 62 days
for the quarter ended June 30, 2003.


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

                                        THREE MONTHS ENDED JUNE 30,
                                          2004               2003
                                       ---------          ---------
Cash provided by (used in)
  Operating activities                       868                406
  Investing activities                      (765)               (14)
  Financing activities                      (604)              (369)
                                       ---------          ---------
Net (decrease) increase in cash             (501)                23
Cash, beginning of period                    751                771
                                       ---------          ---------
Cash, end of period                     $    250          $     794
                                       =========          =========


         Net cash provided by operating activities was $868,000 in the First
Quarter of Fiscal 2005 compared to net cash provided by operating activities of
$406,000 in the prior year period. The increased cash from operations is
primarily due to the increased accounts payable and accrued expenses and a
decrease in accounts receivable as a result of the decreased DSO.

         Net cash used in investing activities was $765,000 in the First Quarter
of Fiscal 2005 compared to $14,000 in the prior year period. The increase in
cash used consists of $374,000 of capitalized software development costs and
capital expenditures of $391,000 primarily for the completion of the hosted data
center and other equipment relating to the relocation of corporate facilities.


         Net cash used by financing activities was $604,000 in the First Quarter
of Fiscal 2005 compared to net cash used by financing activities of $369,000 in
the prior year period. The use of cash in the First Quarter of Fiscal 2005 was a
result of the reduction of $579,000 of advances against accounts receivables.



                                       17
<PAGE>



"FORWARD-LOOKING" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT:

         This Quarterly Report contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements appear in a number of places in this Annual Report
and include all statements that are not statements of historical fact regarding
the intent, belief or expectations of INSCI and its management. These statements
are based upon a number of assumptions and estimates, which are subject to
significant uncertainties, many of which are beyond our control. Words such as
"may," "would," "could," "will," "expect," "anticipate," "believe," "intend,"
"plan" and "estimate" are meant to identify such forward-looking statements.
Such forward-looking statements are not guarantees and actual results may differ
materially from those expressed or implied by such forward-looking statements.
Factors that could cause actual results to differ materially include, but are
not limited to our ability to achieve or maintain growth or profitability, our
ability to execute our business strategy successfully, our ability to obtain
financing and to pay off our existing liabilities and fund our working capital
needs, our relationship with our existing lenders, our relationship with our
customers and suppliers, increased competition, possible system failures and
rapid changes in technology and other factors discussed in this Quarterly Report
and in our other filings with the Securities and Exchange Commission.

QUARTERLY RESULTS:

         Quarterly revenues and results of operations may fluctuate as the
result of a variety of factors, including the lengthy sales cycle for our
products, the proportion of revenues attributable to software license fees
versus services, the amount of revenue generated by alliances with other
companies distributing our products, demand for our products and services, the
size and timing of individual license transactions, the introduction of new
products and product enhancements by us or our competitors, changes in customer
budgets and capital expenditures, competitive conditions in the industry and
general economic conditions. Additionally, the sale of our products generally
involves a significant commitment of capital by our customers and may be delayed
due to time-consuming authorization procedures within an organization. Other
factors affecting our operating results include our ability to design and
introduce on a timely basis new products which compete effectively on the basis
of price and performance, 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 technology based investments. There is no assurance that
we can maintain or increase our sales volume going forward or that we will be
able to achieve a profit in the marketing of our products.

BUSINESS RISKS

         An investment in our common stock involves a high degree of risk. You
should consider carefully the following risks, and consult with your own legal,
tax and financial advisors.


WE HAVE A HISTORY OF LOSSES AND OUR ABILITY TO BE PROFITABLE DEPENDS ON A NUMBER
OF FACTORS THAT WE MAY BE UNABLE TO CONTROL.

         For the fiscal year ended March 31, 2002 and fiscal year ended March
31, 2003 we reported the first two consecutive profitable fiscal years. The
financial performance was the result of a restructuring plan focused on a return
to the core operations of the business as several subsidiaries were discontinued
and a general reduction of overhead in the core business was implemented.
Through our wholly owned subsidiary, WCORP, we acquired certain assets and
liabilities of WebWare and as a result, we experienced operating losses in the
fiscal year March 31, 2004 while the company focused on integration and market
enhancement initiatives. There can be no assurance that a reduction in expenses
will affect future revenues or general market position, or that revenues from
the acquisition will continue to increase at current levels. Additionally, there
can be no assurance that the expense reductions that have been implemented are
sustainable over future periods.




                                       18
<PAGE>



         Our quarterly sales and operating results have varied significantly and
may vary in the future as a result of several factors such as:

         o   Size and timing of software license orders
         o   Completion of backlog orders
         o   Acceptance and sign off of service contracts
         o   Seasonality
         o   Customer budgetary constraints and timelines
         o   Availability of embedded third party products or tool sets
         o   Availability of Alliance Partner products
         o   Financial condition of Alliance Partners
         o   Variations of Alliance Partner strategies
         o   Product introduction and acceptance
         o   Competitive pricing
         o   License revenues as a percentage of revenues
         o   Changes in product distribution channels
         o   Changes in sales force
         o   Variations in expense levels
         o   Change of business strategy
         o   International exchange rates
         o   Changes in accounting pronouncements

         A significant amount of our license and service revenues are derived
from a limited number of customers. Such orders are typically placed within the
specific financial quarter when revenue is recognized, and we expect this trend
to continue. The placement of such orders is typically at the end of a fiscal
quarter requiring shipment, and if a new customer, the implementation of the
licensed product. The sales cycle is typically lengthy for a new licensed
customer and less time for an existing customer. Revenue recognition for service
contracts requires the acceptance and sign off from a customer. The amount of
licensed product and service backlogs at the end of a quarter is typically
immaterial. INSCI has historically experienced increased revenues in the third
fiscal quarter compared to the preceding fiscal quarters. We also experience
variations in product demand due to customer budgetary constraints that may be
imposed within a fiscal year. Additionally, we may experience changes in product
demand due to changes in budgetary timelines. As a consequence, we experience
difficulty in forecasting license and service revenues, particularly at the
beginning of the fiscal quarter.

         We distribute products through Alliance Partners. Changes in the
strategy, product offering, financial condition, material changes in the sales
force, availability of hardware or software products, product defects and
material changes in customer support may affect product orders and revenues in
any period(s).

           License revenue gross margins are substantially higher than other
revenue sources. The percentage of license revenues to the overall revenues in a
fiscal period may materially change the overall gross margins and profitability
for any period. Variations in expense levels compared to other periods may
result in changes in operating income within a fiscal period.



                                       19
<PAGE>




BUSINESS RISKS


BECAUSE WE HAVE EXPERIENCED LOSSES WE MAY NEED ADDITIONAL WORKING CAPITAL TO
IMPLEMENT OUR BUSINESS PLAN.

         In the fiscal year ended March 31, 2004 we experienced a loss from
operations of $1.9 million. This loss was funded partially through additional
equity offerings. In the future, we may need additional financing to operate our
business and implement our business plan. As of June 30, 2004 we had $250,000 of
cash and a working capital deficit of $3.2 million in comparison to $751,000 of
cash and a working capital deficit of $2.6 million as of March 31, 2004. There
can be no assurances, however, that we will be successful in obtaining funds
from any such sources. If additional funds are raised by issuance of equity
securities, dilution to our stockholders will result. If additional funds are
not available, we will be required to modify execution of our business plan.

EXECUTION OF OUR BUSINESS PLAN WILL REQUIRE EXPANSION OF OUR DIRECT SALES.

         To date, we have significantly relied on the indirect sales channel for
sales leads and product revenues. We have invested, and expect to continue to
invest, in the development and growth of a direct sales channel. To the extent
that we are not successful in such efforts, future revenue growth and operating
margins may be adversely affected.

OUR BUSINESS GREATLY DEPENDS ON INDIRECT SALES.

         We depend upon introductions to potential customers by companies with
which we maintain strategic alliances for a significant percentage of our sales.
Although we have written agreements with UNISYS, Xerox Corporation, Fuji-Xerox,
PFPC, Agfa and other value added resellers; the agreements do not require
customer introductions nor do they provide for minimum required purchases of our
products. If any of the companies with which we maintain strategic alliances
decide not to refer potential customers to us, our sales may be reduced and
operating losses increased. In addition, there is no assurance that we will be
able to maintain our strategic alliances on current terms.

WE ARE DEPENDENT ON LICENSED TECHNOLOGY.

         INSCI depends on certain software products that are licensed from third
parties, which are embedded and used in our products. We believe that there are
replacement alternatives for such third party products; however, the
interruption of the availability of such products may have an adverse impact on
the delivery of our products. Additionally, we expect our third party vendors to
maintain and continually improve their products. To the extent that such
products became obsolete or inoperable with other industry standard
applications, we may experience an adverse effect on revenues, operating results
and a decrease in customer satisfaction.

HOSTED SOLUTION

         We market our digital asset management application in a hosted data
center. The market for success with this model is not clearly demonstrated, and
market acceptance of the hosted center is not ensured. To the extent that we
experience technological problems or challenges, certain of our customers may
seek a market alternative, which may limit market adoption of the hosted model.

         Furthermore, the Company is in the process of transitioning the hosted
model from that of a third party to an in-house solution. To the extent that the
estimated cost savings are not realized or difficulties arise from such a
transition, the business may suffer certain consequences.


                                       20
<PAGE>


OUR PRODUCTS AND SERVICES ARE DEPENDENT ON INTERNET ACCEPTANCE, ACCESSIBILITY,
INFRASTRUCTURE AND SECURITY.

         INSCI has developed and realized revenues from its Internet-based
products and related services. The Internet is a new technology and as such, is
characterized by rapid technology changes, evolving standards and adoption
rates. Future revenues and services are dependent upon the acceptance of the
Internet as a recognized method of commercial competence.

         The accessibility of the Internet has expanded over the last several
years. Technology enhancements and improvements have accelerated the
availability of Internet access. To the extent that continued developments in
communications, communication standards, availability and accessibility do not
continue to expand, the rate of adoption may decline. Additionally, the
corporate expansion of the Internet as a commercial communications platform
typically requires a capital expenditure and support infrastructure. To the
extent that corporate capital expenditures decline or funding for Internet-based
programs are reduced, the accessibility and necessary supporting infrastructure
may reduce the adoption and performance of the Internet.

         If there is an increase in the use of the Internet, or an increase in
bandwidth, the infrastructure may not be able to effectively support demand and
result in a degradation of commercial acceptance. Reduced response times may
also affect the acceptance of the Internet.

RAPID TECHNOLOGY CHANGES IN OUR INDUSTRY MAY ADVERSELY AFFECT OUR BUSINESS.

         Our business is subject to technological advances and possible product
obsolescence. The market for our products is characterized by rapidly changing
technology, intense competition, technological complexity and evolving industry
standards. We must insure that our products are compatible with those products
offered by third-party vendors, including server platforms for our software and
various storage devices and platforms. We have no contracts with third-party
vendors; therefore there is no assurance that we will be able to make our
software products compatible with new products that are introduced by others.

         We are in the process of developing a next generation of applications
based upon J2EE three tier architecture. We have also embraced a Web Services
technology model for the user interfaces and API. There can be no assurance that
such technologies will not be replaced by more contemporary offerings in the
marketplace.

WE DEPEND ON PROPRIETARY TECHNOLOGY, WHICH IS NOT PROTECTED BY PATENTS.

         Our business depends on proprietary software technology for which we
have no patent protection. Although we require our employees and others to whom
we disclose proprietary information to sign non-disclosure agreements, this
protection may not be sufficient. Our business will be adversely affected if
anyone improperly uses or discloses our proprietary software or other
proprietary information.

AS WE MIGRATE OUR BUSINESS MODEL TO A RECURRING REVENUE STREAM WE MAY EXPERIENCE
CERTAIN QUARTERLY REVENUE DEGRADATION.

         As we attempt to expand the hosting model we may experience certain
increased costs to establish the hosting services center. Furthermore there can
be no assurance that market adoption and revenue realization will cover such
costs. As a consequence, the Company may experience negative cash flows from the
establishment and implementation of such a strategy. The establishment of such a
strategy is capital intensive and requires certain management skills that we
must acquire.

AS A CONSEQUENCE OF THE REVERSE STOCK SPLIT WE MAY  EXPERIENCE  SHAREHOLDER
LIQUIDITY ISSUES

         We implemented a reverse stock split of 1:10 on January 2, 2004. As a
result, the freely traded number of shares on the OTC bulletin board has been
substantially reduced. This may give rise to certain liquidity issues relative
to the freely traded common stock. This may impair the ability to achieve
liquidity within certain periods of trading.


                                       21
<PAGE>


BECAUSE OF THE HIGH COST, WE LACK PRODUCT LIABILITY INSURANCE.

         We develop, market, install and service electronic information and
document management systems. Failure of our products may result in a claim
against us. Because of the high cost of product liability insurance, we do not
maintain insurance to protect against claims associated with the use of our
products. Any claim against us may result in costs to us in defending
litigation. Further, any claim may require management's time and the use of our
resources.

WE DEPEND UPON CERTAIN KEY EMPLOYEES TO DEVELOP OUR PRODUCTS.

         We do not have the financial resources to compete with larger more
established companies to attract and retain certain key technological employees.
The loss of current technological employees or our inability to recruit and
retain employees with certain key technology skills will have an adverse effect
on product development and our business.

THE MEMBERS OF OUR BOARD OF DIRECTORS OWN A LARGE PERCENTAGE OF OUR COMMON STOCK
AND CAN INFLUENCE MATTERS REQUIRING THE VOTE OF SHAREHOLDERS.

         On June 30, 2004, our directors and officers beneficially owned, as
defined by the SEC, approximately 16 million shares of common stock,
representing 77% of the outstanding common stock. Based on their ownership, our
directors and officers have the ability to influence matters requiring a
stockholder vote, including the election of directors, the amendment of charter
documents, the merger or dissolution of our company and the sale of all or
substantially all of our assets. Their voting power also may discourage or
prevent any proposed takeover.

OUR EXISTING SHAREHOLDERS FACE SUBSTANTIAL DILUTION UPON THE ISSUANCE AND
CONVERSION OF SERIES A CONVERTIBLE PREFERRED STOCK AND CONVERSION OF OUR
OUTSTANDING SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES C CONVERTIBLE
PREFERRED STOCK.

         Our stock is traded on the Over the Counter Bulletin Board (OTCBB)
under the symbol "INCC". As of August 4, 2004 we have 5,992,287 common shares
outstanding. The Company's Series B Convertible Preferred Stock is convertible
into approximately 8,634,000 shares of common stock. The Company's Series C
Convertible Preferred Stock is convertible into approximately 5,366,000 shares
of common stock. The average daily trading volume for the 30-day trading period
ended August 4, 2004 is 5,524.

THE POTENTIAL ISSUANCE OF ADDITIONAL SHARES OF PREFERRED STOCK MAY NEGATIVELY
AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND SHAREHOLDER RIGHTS.

          Our certificate of incorporation empowers the board of directors with
the right to determine the designations, rights, preferences and privileges of
the holders of one or more series of preferred stock. The board of directors can
issue, without stockholder approval, preferred stock with voting, dividend,
conversion, liquidation or other rights, which could adversely affect the voting
power and equity interest of common stock holders.

BECAUSE OF CERTAIN PROVISIONS IN OUR BY-LAWS, CHANGE IN CONTROL MAY BE
DIFFICULT.

         Our by-laws and the Delaware General Corporation Law contain provisions
including a shareholders rights plan that may make a change in control more
difficult or delay attempts by others to obtain control of us, even when this
may be in the interests of stockholders. The Delaware General Corporation Law
also imposes conditions on certain business combinations with "interested
stockholders", as defined by Delaware law. Under certain agreements with key
personnel, we also have provided stock options in the event of a change of
control and a termination of those employment agreements without cause.
Additionally, we have provided that if a change of control occurs, certain
directors will receive immediate vesting of stock options granted under our 1992
Directors Option Plan. Change of control shall occur, in this instance, if a
majority of the directors elected at any Annual Meeting are persons other than
those nominated by management in the proxy statement distributed for such Annual
Meeting.



                                       22
<PAGE>

DIVIDENDS ON OUR COMMON STOCK ARE NOT LIKELY.

           We do not anticipate paying any cash dividends on our common stock.
We intend to keep future earnings, if any, to finance the operation and
expansion of our business.

ITEM 3.  CONTROLS AND PROCEDURES

         (A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

                  Our Chief Executive Officer has evaluated the effectiveness of
         the design and operation of our disclosure controls and procedures
         within 90 days of the filing date of this quarterly report, and based
         on his evaluation, our Chief Executive Officer has concluded that these
         disclosure controls and procedures are effective in timely alerting
         him to material information relating to the Company required to be
         included in the Company's periodic SEC filings. There were no
         significant changes in our internal controls or in other factors that
         could significantly affect these controls subsequent to the date of his
         evaluation.

                  Disclosure controls and procedures are the controls and other
         procedures that are designed to ensure that information required to be
         disclosed by us in the reports we file or submit under the Exchange Act
         is recorded, processed, summarized, and reported, within the time
         periods specified in the Securities and Exchange Commission's rules and
         forms. Disclosure controls and procedures include, without limitation,
         controls and procedures designed to ensure that information required to
         be disclosed by us in the reports that we file under the Exchange Act
         is accumulated and communicated to our Chief Executive Officer to allow
         timely decisions regarding required disclosure.

         (B) CHANGES IN INTERNAL CONTROLS

                  Not applicable.


PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         The Company is a defendant in an action commenced on May 16, 2003 by
Lason, Inc. ("Lason") in the United States Bankruptcy Court for the District of
Delaware. The Lason action is seeking the return of certain pre-petition
payments made prior to the bankruptcy petition of Lason in the amount of
approximately $121,000. The Company is contesting the action and has asserted a
number of affirmative defenses to the action.

ITEM 2. CHANGE IN SECURITIES


         During March 2004, the Company amended its Amended and Restated
Certificate of Designation of its Series A, Series B and Series C Convertible
Preferred Stock amending the number of shares authorized for each designation.
The total authorized Preferred of 10,000,000 shares is designated as follows:
Series A consists of 1,668,274 authorized shares, Series B consists of 2,317,040
authorized shares and Series C consists of 6,014,686 authorized shares.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         This item is not applicable.

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

         This item is not applicable.



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ITEM 5. OTHER INFORMATION

         This item is not applicable.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        This item is not applicable.

(A) EXHIBITS

            Exhibit 31.1 *  Certification pursuant to 18 U.S.C. Section 1350 as
                              adopted pursuant to Section 302 of the
                              Sarbanes-Oxley Act of 2002
            Exhibit 32.1 *  Certification pursuant to 18 U.S.C. Section 1350 as
                              adopted pursuant to Section 906 of the
                              Sarbanes-Oxley Act of 2002

* Annexed hereto

(B) REPORTS ON FORM 8-K

         A Current Report on Form 8-K was filed by the Company on April 28, 2004
         dated April 14, 2004, which reported an agreement with Selway Partners
         LLC ("Selway") and CIP Capital LP ("CIP") whereby, effective March 31,
         2004, the issued and outstanding Series A Convertible Debentures are
         converted into shares of Series C Convertible Preferred Stock. The
         Company issued an aggregate of 831,726 shares of Series C Convertible
         Preferred Stock to Selway and CIP for the outstanding Series A
         Debentures in the sum of $1,613,216.




                                    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:  August 11, 2004       By:      /S/ HENRY F. NELSON
                                      --------------------------------------
                                      Henry F. Nelson
                                      Chief Executive Officer, President and
                                      Chief Financial Officer




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