<PAGE>

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

                                   FORM 10-QSB

[X]   Quarterly Report under Section 13 or 15d of the Securities Exchange Act
      of 1934 for the quarterly period ended: December 31, 1996

[ ]  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 December 31, 1996
-------------------                             --------------------------------
Common stock, par value $.01                              4,075,257

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

<PAGE>

                                   INSCI CORP

                                      INDEX

PART I          FINANCIAL INFORMATION

Item 1.         Condensed Financial Statements

                Condensed Balance Sheet as of  December 31, 1996               3

                Condensed Statements of Operations for the Three Months
                  and Nine Months Ended December 31, 1996 and 1995             4

                Condensed Statement of Cash Flows for the Nine Months
                  Ended December 31, 1996 and 1995                             5

                Notes to Condensed Financial Statements                        6

Item 2.         Management's Discussion and Analysis or Plan of Operation      7


PART II         OTHER INFORMATION

Item 1          Legal Proceedings                                             13

Item 2          Changes in Securities                                         14

Item 4          Submission of Matters to a Vote of Security Holders           14

Item 5          Other Events                                                  14

Item 6          Exhibits and Reports on Form 8-K                              15


                Signature                                                     16
<PAGE>

                                   INSCI CORP
                                  BALANCE SHEET
                                 (in thousands)
                                   (unaudited)


ASSETS                                                              DECEMBER 31,
                                                                       1996
                                                                    ------------
Current assets:
     Cash and cash equivalents                                        $ 4,776
     Accounts receivable, net                                           3,114
     Inventory                                                             93
     Prepaid expenses and other                                           207
                                                                      -------
       Total current assets                                             8,190
Property & equipment                                                    1,938
     Less: accumulated depreciation                                    (1,206)
                                                                      -------
       Total equipment, net                                               732
Capitalized software development costs,
     net of accumulated amortization of $960                              633
Purchased software, net of accumulated amortization of $298               956
Other assets                                                               89
                                                                      -------
Total assets                                                          $10,600
                                                                      =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Note payable                                                     $    15
     Accounts payable                                                     993
     Accrued liabilities                                                1,198
     Customer deposits                                                     20
     Unearned maintenance revenue                                         716
                                                                      -------
       Total current liabilities                                        2,942
Note payable                                                               44
Stockholders' equity :
  Common stock                                                             40
  Preferred stock                                                          39
  Additional paid-in capital                                           23,295
  Accumulated deficit                                                 (15,760)
                                                                      -------
       Total stockholders' equity                                       7,614

Total liabilities and stockholders' equity                           $ 10,600
                                                                     ========


                             See accompanying notes

<PAGE>

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

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED                      NINE MONTHS ENDED
                                                            DECEMBER 31,                           DECEMBER 31,
                                                      1996              1995                 1996              1995
                                                     -------          -------               -------         -------
<S>                                                  <C>              <C>                   <C>             <C>    
Revenue
    Product                                          $ 1,983          $ 1,379               $ 4,473         $ 3,078
    Maintenance                                          556              460                 1,435           1,296
    Services                                             821              316                 2,472             698
                                                     -------          -------               -------         -------
       Total revenue                                   3,360            2,155                 8,380           5,072
Cost of revenue
    Product                                              446              392                 1,209           1,149
    Maintenance                                          329              230                 1,032             730
    Services                                             404              195                 1,095             479
                                                     -------          -------               -------         -------
       Total cost of revenue                           1,179              817                 3,336           2,358
                                                     -------          -------               -------         -------
Gross margin                                           2,181            1,338                 5,044           2,714
Expenses
    Sales and marketing                                1,077              552                 2,746           1,645
    Product development                                  554              356                 1,545           1,060
    General and administrative                           492              345                 1,496           1,202
    Litigation settlement costs                                           250                                   250
    Restructure/relocation costs                           -              (61)                    -              89
                                                     -------          -------               -------         -------
       Total expenses                                  2,123            1,442                 5,787           4,246
                                                     -------          -------               -------         -------

Income (loss) from operations                             58             (104)                 (743)         (1,532)
Interest income (expense)
    Interest income                                       45                7                    70              39
    Interest expense                                      (5)               -                   (10)              -
                                                     -------          -------               -------         -------
       Interest income (expense) net                      40                7                    60              39
                                                     -------          -------               -------         -------

Net income (loss)                                         98              (97)                 (683)         (1,493)

Preferred stock dividend                                (139)               -                  (220)            (27)
                                                     -------          -------               -------         -------

Net income (loss) applicable to common shares        $   (41)         $   (97)              $  (903)        $(1,520)
                                                     =======          =======               =======         =======
Net income (loss) per common share                   $ (0.01)         $ (0.03)              $  0.23)        $ (0.42)
                                                     =======          =======               =======         ======= 

Weighted average common shares outstanding             4,056            3,642                 3,983           3,641
                                                     =======          =======               =======         ======= 
</TABLE>

<PAGE>

                                   INSCI CORP
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
                                                            NINE MONTHS ENDED
                                                                DECEMBER 31
                                                             1996         1995
                                                           -------      -------
Cash flows from operating activities:
  Net income (loss)                                        $  (683)     $(1,493)
  Reconciliation of net loss to net cash
  used in operating activities:
    Depreciation and amortization                              360          332
    Amortization of deferred software costs                    680          591
    Changes in assets and liabilities:
      Accounts receivable                                   (1,012)         (68)
      Inventory                                                (81)          (1)
      Prepaid expenses and other assets                        (80)          21
      Note payable                                             (33)            -
      Accounts payable                                         332           23
      Accrued and other liabilities                            134          287
      Customer deposits                                       (237)        (149)
      Unearned maintenance revenue                             142          (57)
                                                           -------      -------
Net cash used in operating activities                         (478)        (514)
Cash flows from investing activities:
    Additions to capitalized software development costs       (675)        (141)
    Capital expenditures                                      (259)        (112)
    Other assets                                                              3
                                                           -------      -------
Net cash used in investing activities                         (934)        (250)
Cash flows from financing activities:
    Proceeds from exercise of stock options                    156             -
    Proceeds from sale of preferred stock                    6,350        1,200
    Payment of preferred stock issuance costs                 (728)        (260)
    Redemption of preferred stock and dividends                          (1,000)
    Payment of capital lease obligations                       (26)         (28)
                                                           -------      -------
Net cash provided by (used in) financing activities          5,752          (88)
                                                           -------      -------

Net change in cash and cash equivalents                      4,340         (852)
Cash and cash equivalents at beginning of year                 436        1,605
                                                           -------      -------
Cash and cash equivalents at end of period                 $ 4,776      $   753
                                                           =======      =======



                             See accompanying notes
<PAGE>


                                   INSCI CORP

                     NOTES TO CONDENSED 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 reports on Form 10-K, filed on July 1, 1996, for the fiscal
year ended March 31, 1996, and with the Company's definitive proxy statement for
its 1996 Annual Meeting of Stockholders filed with the Commission on July 29,
1996.

      In the opinion of the management of the Company, the accompanying
unaudited financial statements reflect all adjustments (of a normal and
recurring nature) which are necessary to present fairly the financial position
of the Company as of December 31, 1996 and the results of operations for the
quarters ended December 31, 1996 and 1995 and nine months ended December 31,
1996 and 1995 and cash flows for the nine months ended December 31, 1996 and
1995.

      The computation of income (loss) per common and common equivalent shares
has been calculated on the basis of the weighted average number of common shares
outstanding during each period. When dilutive, stock options and warrants are
included as share equivalents using the modified treasury stock method.

<PAGE>

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

COMPARISON OF RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                     Three months ended               Nine months ended
                                                        December 31,                     December 31,
                                                    1996           1995               1996          1995
                                                    ----           ----               ----          ----
<S>                                                 <C>            <C>                <C>           <C>
Revenue                                               %              %                  %             %
                                                      -              -                  -             -
    Product                                          59             64                 53            61
    Maintenance                                      17             21                 17            25
    Services                                         24             15                 30            14
                                                    ---            ---                ---           ---
       Total revenue                                100            100                100           100
Cost of revenue
    Product                                          13             18                 15            23
    Maintenance                                      10             11                 12            14
    Services                                         12              9                 13             9
                                                    ---            ---                ---           ---
       Total cost of revenue                         35             38                 40            46
                                                    ---            ---                ---           ---
Gross margin                                         65             62                 60            54
Expenses
    Sales and marketing                              32             26                 33            32
    Product development                              16             16                 18            21
    General and administrative                       15             16                 18            24
    Litigation settlement costs                       0             12                  0             5
    Restructure/relocation costs                      0             -3                  0             2
                                                    ---            ---                ---           ---
       Total expenses                                63             67                 69            84

Income (loss) from operations                         2             -5                 -9           -30
Interest income (expense)
    Interest income                                   1              0                  1             1
    Interest expense                                  0              0                  0             0
                                                    ---            ---                ---           ---
       Interest income (expense) net                  1              0                  1             1
                                                    ---            ---                ---           ---

Net income (loss)                                     3             -5                 -8           -29
                                                    ===            ===                ===           ===
</TABLE>

<PAGE>

THREE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED
TO THE THREE MONTHS ENDED DECEMBER 31, 1995:

REVENUE
      INSCI sells, installs and supports imaging, print-on-demand, data
management and archival storage software products. Sales to end users generally
include software, systems integration and consulting services, installation and
training, and relative to total revenues, minor amounts of optical storage
hardware purchased from third parties. Post-installation maintenance and
customer support is available under the terms of a separate contract at an
additional charge. INSCI also sells software products directly to value added
resellers and distributors.

      Total revenue for the quarter ended December 31, 1996 was $3,360,000 and
increased by 56% compared to revenue of $2,155,000 for the quarter ended
December 31, 1995. Revenue is net of discounts and allowances. Product revenue
for the current quarter totaled $1,983,000 and increased by 44% versus last
year's quarter. The increase in product revenues reflects steps taken by the
Company to increase the number of enterprise level licenses, which have a high
sales value, combined with increasing revenues from the Company's strategic
sales partners.

      Maintenance revenue was $556,000 for the December 31, 1996 quarter and
increased by 21% from the comparable 1995 quarter, reflecting the increase in
the Company's installed base of software licenses and the corresponding increase
in related maintenance revenues. Service revenue, which includes charges for
consulting, systems integration services, custom applications, installation and
training, totaled $821,000 for the current quarter and increased by 160%, or
$505,000, over the December 31, 1995 quarter. This increase is primarily
attributable to additional revenues from the Company's consulting and systems
integration activities.

GROSS MARGIN AND COST OF REVENUE
      Gross margin for the quarter ended December 31, 1996 was $2,181,000 and
increased by 63% over gross margin of $1,338,000 for the quarter ended December
31, 1995. Gross margin as a percent of sales for these periods was 65% and 62%
respectively. The increase in the gross margin percentage during 1996 reflects
an increase in sales volume with a lower rate of increase in cost of revenue,
much of which, including software amortization and support expenses, does not
increase in proportion to revenue increases.

      Cost of product revenue was $446,000 for the December 31, 1996 quarter
compared to $392,000 for the same quarter last year. Costs associated with
product revenue include the costs of hardware and software products purchased
for resale, and charges for the amortization of capitalized software development
costs. Cost of product revenue varies depending upon the mix of software and
hardware products including individual system orders. Cost of product revenue
includes software amortization charges of $229,000 for the December 31, 1996
quarter compared to $179,000 for the comparable period last year.

<PAGE>

      Costs for maintenance and services revenue include the costs of systems
integration, consulting, customer support personnel, the cost of third-party
services and hardware maintenance subcontracts. Total combined cost of revenue
for maintenance and services were $733,000 for the December 31, 1996 quarter
compared to $425,000 for the comparable period last year. This increase reflects
additional personnel associated with increased billings in systems integration
services combined with added personnel costs associated with upgrading the level
of maintenance support services provided to customers.

SALES AND MARKETING
      Sales and marketing expenses for the quarter ended December 31, 1996 were
$1,077,000 or 32% of total revenue compared to $552,000 or 26% of total revenue
for the quarter ended December 31, 1995. The expense increase of $525,000
between these periods is attributable to sales commissions related to increased
revenues combined with additions in marketing programs and personnel to support
increases in revenues.

PRODUCT DEVELOPMENT
      Product development expenses were $554,000, or 16% of revenues, (after
capitilization of software developments costs of $287,000) for the quarter ended
December 31, 1996 compared to $356,000, or 16% of revenues, (after
capitilization of software developments costs of $60,000) for the comparable
quarter in 1995. The $198,000 increase in expenses reflects resources, primarily
personnel additions, to enhance and develop future company products. The
increase in capitalized software development costs reflects additional
investments in new and enhanced products, much of which relates to the Company's
new Windows NT and imaging products.

GENERAL AND ADMINISTRATIVE
      General and administrative expenses were $492,000, or 15% of revenues, for
the quarter ended December 31, 1996 compared to $345,000, or 16% of revenues for
the comparable quarter in 1995. The increase of $147,000 is attributable to
additional audit, legal, professional, shareholder relations, compensation and
insurance expenses.

NON-RECURRING COSTS
      The Company recorded a charge of $250,000 in the quarter ended December
31, 1995 related to the settlement in full of a dispute with Marine Midland
Bank. During the same quarter, the Company reversed $61,000 in expenses related
to provision for a restructuring plan that had been accrued during the quarter
ended June 30, 1995. There has been no activity relating to non-recurring
charges during the quarter ended December 31, 1996.

INTEREST INCOME (EXPENSE)
      Net interest income (expense) was $40,000 in the quarter ended December
31, 1996 compared to $7,000 for the comparable quarter last year. The increase
in net interest income of $33,000 reflects interest on added equity funds that
were raised during September, October and November of 1996.

<PAGE>

NET INCOME (LOSS)
      Net income was $98,000 for the quarter ended December 31, 1996 compared to
a net loss of $97,000 for the quarter ended December 31, 1995. After provision
for preferred stock dividends of $139,000, which primarily relate to capital
raised for acquisition purposes during the Fall of 1996, net loss applicable to
common shares for the quarter ended December 31, 1996 was $41,000 , or ($.01)
cents per share, compared to a loss of $97,000, or ($.03) cents per share for
the comparable period last year.


NINE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED
TO THE NINE MONTHS ENDED DECEMBER 31, 1995:

REVENUE
      Total revenue for the nine months ended December 31, 1996 was $8,380,000
and increased by 65% compared to revenue of $5,072,000 for the nine months ended
December 31, 1995. Product revenue was $4,473,000 for the latest nine month
period and increased by 45% compared product revenues of $3,078,000 for the same
period in 1995. This increase is attributable to higher value sales orders and
reflects the Company's emphasis on selling enterprise licenses to key accounts
and larger customers, combined with increasing revenues from the Company's
strategic sales partners.

      Maintenance revenue was $1,435,000 for the nine months ended December 31,
1996 and increased by $139,000 compared to the same period in 1995. Services
revenue was $2,472,000 for the latest nine month period and increased by 254%,
or $1,774,000 compared to the nine months ended December 31, 1995. This increase
is primarily attributable to the increase in revenue from the Company's
consulting and systems integration activities. During the current fiscal year,
the Company has focused on increasing its systems integration services to
increase total revenue and to provide support services to enable higher sales
volumes of its core software products.

GROSS MARGIN AND COST OF REVENUE

      Gross margin for the nine months ended December 31, 1996 was $5,044,000
and increased by 86% over gross margin of $2,714,000 for the nine months ended
December 31, 1995. Gross margin as a percent of sales for these periods was 60%
and 54% respectively. The increase in the gross margin percentage during 1996
reflects an increase in sales volume with a lower rate of increase in cost of
revenue, much of which, including software amortization and support expenses,
does not increase in proportion to revenue increases.

      Cost of product revenue was $1,209,000 for the nine months ended December
31, 1996 compared to $1,149,000 for the same period during 1995. The cost of
product revenue includes software amortization charges of $680,000 for the
December 31, 1996 period compared to $591,000 for the comparable period last
year.

<PAGE>

      Total combined costs of revenue for maintenance and services were
$2,127,000 for the nine months ended December 31, 1996 and increased by 76%
compared to $1,209,000 for the nine months ended December 31, 1995. This
compares with a 96% increase in the revenues related to these costs. The
increase in cost of revenue reflects additional personnel associated with
increased billings in systems integration services combined with added personnel
costs associated with upgrading the level of maintenance support provided to
customers.

SALES AND MARKETING
      Sales and marketing expenses for the nine months ended December 31, 1996
were $2,746,000 or 33% of total revenue compared to $1,645,000 or 32% of total
revenue for the nine months ended December 31, 1995. The expense increase of
$1,101,000 between these periods is attributable to sales commissions related to
increased revenues combined with additions in marketing programs and personnel
to support increases in revenues.

PRODUCT DEVELOPMENT
      Product development expenses were $1,545,000, or 18% of revenues, ( after
capitilization of software developments costs of $675,000) for the nine months
ended December 31, 1996 compared to $1,060,000, or 21% of revenues, ( after
capitilization of software developments costs of $141,000) for the comparable
period in 1995. The $485,000 increase in expenses reflects resources, primarily
personnel additions and outside contractors, to enhance and develop future
company products. The increase in capitalized software development costs
reflects additional investments in new and enhanced products, much of which
relates to the Company's new Windows NT and imaging products.
 .
GENERAL AND ADMINISTRATIVE
      General and administrative expenses were $1,496,000, or 18% of revenues,
for the nine months ended December 31, 1996 compared to $1,202,000, or 24% of
revenues for the comparable period in 1995. The increase of $294,000 is
attributable to additional audit, legal, professional, shareholder relations,
compensation and insurance expenses.

NON-RECURRING COSTS
      The Company recorded a charge of $250,000 in the quarter ended December
31, 1995 related to the settlement in full of a dispute with Marine Midland
Bank. During the same quarter, the Company reversed $61,000 in expenses related
to provision for a restructuring plan that had been accrued during the quarter
ended June 30, 1995. There has been no activity relating to non-recurring
charges during the nine months ended December 31, 1996.

<PAGE>

INTEREST INCOME (EXPENSE)
      Interest income (expense) net was $60,000 in the for the nine months ended
December 31, 1996 compared to $39,000 for the comparable period last year. The
increase in net interest income of $21,000 reflects interest on added equity
funds that were raised during September, October and November of 1996.

NET INCOME (LOSS)
      Net loss was $683,000 for the nine months ended December 31, 1996 compared
to a net loss of $1,493,000 for the nine months ended December 31, 1995. After
provision for preferred stock dividends of $220,000, which primarily relate to
capital raised for acquisition purposes during the Fall of 1996, net loss
applicable to common shares for the nine months ended December 31, 1996 was
$903,000 , or ($.23) cents per share, compared to a loss of $1,520,000 after
preferred stock dividends of $27,000, or ($.42) per share, for the comparable
period last year.

LIQUIDITY AND CAPITAL RESOURCES

      The Company's cash flows are summarized below for the periods indicated:

                                                       Nine months ended
                                                          December 31,
                                                ------------------------------
                                                    1996               1995
                                                    ----               ----
      Cash provided by (used in):
           Operating activities                 $ (478,000)         $(514,000)
           Investing activities                   (934,000)          (250,000)
           Financing activities                  5,752,000            (88,000)
                                                ----------          ---------
                Increase (decrease) in cash     $4,340,000          $(852,000)
                                                ==========          ========= 


      The Company generated net negative cash flows of ($478,000) from
operations in the nine months ended December 31, 1996. The Company had a
negative cash flow of ($934,000) from investing activities relating to additions
to capitalized software and capital expenditures. Financing activities generated
cash flow of $5,752,000, and included proceeds from the sale of preferred stock,
net of issuance costs, of $5,622,000. The preferred stock placement requires
that approximately $4,000,000 of the funds raised be utilized for acquisition
purposes. In January, 1997, the Company obtained a bank line of credit
aggregating $1,750,000 (refer to items) to supplement its working capital and
equipment financing requirements. Working capital at December 31, 1996 was
$5,248,000 compared to $140,000 at December 31, 1995.

      The Company presently has no material commitments for capital
expenditures.


RISK FACTORS
      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.

<PAGE>

      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's operating results are
affected by a wide variety of factors, many of which are beyond the control of
the Company. The principal factors are the revenue contribution of its sales and
distribution partners and channels, market acceptance of INSCI's products,
customer demand for INSCI's products and services, the level of orders which are
received and can be shipped in a quarter, and product performance and
reliability. Other factors 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, and
general economic conditions affecting the investment by potential customers in
peripheral computer devices. There is no assurance that the company can sustain
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 1. LEGAL PROCEEDINGS
      On September 30, 1992, the Company and Information Management Technologies
Corporation ("IMTECH"), the Company's former majority shareholder, reached an
agreement with the Securities and Exchange Commission ("Commission") to conclude
and settle the Commission's informal investigation of the Company and IMTECH.
The Company and IMTECH, without admitting or denying any of the allegations made
by the Commission in its complaint, and without trial or final adjudication of
the allegations made in the Commission's complaint consented to the entry of an
order enjoining them from future violations of certain provisions of the Federal
Securities Laws and the rules and regulations thereunder. The settlement may
adversely affect the Company and restrict the Company's ability to raise funds
from persons located in certain significant states. The impact of these
restrictions may be to prevent the Company and IMTECH from conducting future
public offerings or private security placements. The Company and IMTECH may be
subject to contempt of court or other sanctions if the Company or IMTECH, at any
time in the future, engage in actions that are deemed to violate the consent
judgement and the injunctions.

      The Securities and Exchange Commission (the "Commission") issued an order,
dated April 13, 1995, authorizing a private investigation of Imtech (INSCI's
former majority shareholder) and INSCI, and its officers and directors during
the period from March 1993 and continuing until April 13, 1995. The order of
investigation inquiring into whether the Company and its then officers and
directors engaged in violations of Rule 10b-5 of the Securities Exchange Act of
1934 (the "Exchange Act"); failed to file annual reports and other information
as required by the rules and regulations of the Commission in violation of
Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13; and
failed to maintain proper books and records in violation of Section 13(b)2 of
the Exchange Act or falsified or caused to be falsified books and records of the
Companies in violation of Sections 13(b)(2)(a), Rule 13b2-1, and Rule 13b2-2 of
the Exchange Act.

      On September 10, 1996 the Company was informed by the Commission that the
staff inquiry relating to these matters had been terminated and that no
enforcement action had been recommended at this time.

      The Company has previously agreed to use its best efforts to file a
registration statement for shares of stock in the Company pursuant to a
conversion right granted to holders of convertible preferred stock in the
Company and to certain Stockholders and Option and Warrant Holders. The Company
is in the process of preparing a registration statement for the securities and
may be subject to damages for its Registration Rights Agreements.
<PAGE>

ITEM 2. CHANGES IN SECURITIES
     Changes in securities are incorporated by reference. Refer to Item 6.(b) on
     this report.

 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     On September 26, 1996, the Company held its Annual Meeting of Shareholders,
     and the Shareholders ratified the following:

     (1) To approve the 1997 Equity Incentive Plan authorizing 3,000,000 shares
     of Common Stock $0.01 par value to replace 3,077,935 shares under the 1992
     Stock Option Plan that will be terminated.
     (2) To ratify the Board of Directors resolution with respect to the direct
     grant of 3,000,000 stock options to certain employees, directors and
     consultants.
     (3) To amend the 1992 Directors Option Plan.

      The Company incorporates, by reference, the proxy material submitted to
the Shareholders eligible to vote at its Annual Meeting.

ITEM 5. OTHER EVENTS
      On January 13, 1997, the Company entered into an Agreement with Silicon
Valley Bank ("Bank"), wherein the Company obtained a bank line of credit
aggregating $1,750,000, of which $1,500,000 was designated as a working capital
line, and $250,000 for an equipment financing line.

      The rate of interest to be paid to the Bank is the prime rate plus one
percent (1%), which rate of interest would be reduced by one-half (1/2%) upon
the Company achieving quarterly income/before provision for dividends on
Preferred Stock. Additionally, the terms of the line contain covenants which
include that the Company not exceed $150,000 loss for the quarter ended March
31, 1997, maintenance of minimum tangible net worth of $5,000,000, minimum quick
ratio of 2.0:1 and debt service coverage of 1.5X.

      The term of the line further provides for working capital advances up to
seventy five percent (75%) of the Company's eligible domestic accounts
receivable under ninety days from invoice date. The advance rate is capped at
sixty percent until quarterly profitability of $75,000 is achieved. Collateral
for the line is comprised of all Company assets except fixed assets financed
elsewhere.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      The reports on Form 8-K to be included to the 10-K and Proxy Statement
filed by the Company (incorporated by reference)

      (A) EXHIBITS. None filed with this report.

<PAGE>

      (B) REPORTS ON FORM 8-K.

      A report on Form 8-K, dated March 28, 1996, was filed on April 5, 1996 by
      the Company regarding the appointment of a new director.

      A report on Form 8-K, dated March 28, 1996, was filed on April 12, 1996 by
      the Company regarding the acquisition of Courtland.

      A report on Form 8-K, dated April 10, 1996, was filed on April 12, 1996 by
      the Company regarding the settlement with Bank of New York.

      A report on Form 8-K, dated April 29, 1996, was filed on May 6, 1996 by
      the Company regarding the resignation of the Chief Financial Officer.

      A report on Form 8-K, dated April 30, 1996, was filed on May 16, 1996 by
      the Company regarding the warrant exchange with Norcross.

      A report on Form 8-K/A , dated June 11, 1996 was filed on June 11, 1996 by
      the Company regarding the audited financial statements of Courtland.

      A report on Form 8-K, dated September 12, 1996, was filed on September 20,
      1996 by the Company regarding the private placement of convertible
      preferred stock.

      A report on Form 8-K, dated September 16, 1996, was filed on September 23,
      1996 by the Company regarding the sale of shares by IMTECH.

      A report on Form 8-K, dated September 20, 1996, was filed on September 20,
      1996 by the Company regarding the financing with Amerivet/Dymally
      Securities.

      A report on Form 8-K, dated December 30, 1996, was filed on January 7,
      1997 by the Company regarding a change in auditing firms from Mahoney
      Cohen Rashba & Pokart, CPA, PC to Pannell Kerr & Forster.

<PAGE>

                                     SIGNATURE

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

                                     INSCI CORP.


Date:  February 14, 1997        By:  /S/ ROGER C. KUHN
                                     -------------------------------
                                     Roger C. Kuhn
                                     Vice President and Chief
                                     Financial Officer