Consulting and implementation services are generally associated with the implementation of an InsPro instance for either an ASP or licensed client, and cover such activity as InsPro installation, configuration, modification of InsPro functionality, client insurance plan set-up, client insurance document design, and system documentation.
All issued, outstanding and unvested options and restricted stock grants as of October 29, 2009 became vested as a result of a change of control, which occurred on October 29, 2009, in accordance with the Company’s 2008 Equity Compensation Plan, which resulted in $121,160 of share based employee and director compensation expense in 2009.
In 2009 we incurred amortization expense of $87,148 as compared to $43,574 in 2008 for software development cost for external marketing pertaining to InsPro Technologies’ InsPro system.
Decreases in liabilities of discontinued operations of $1,577,445, which is primarily the result of the repayment and assumption of certain unearned commission advances as a result of the sale of our Telesales call center produced agency business, which was partially offset by the accrual of the non-cancelable lease for the abandoned portion of the Deerfield Beach office.
During the year ended December 31, 2009 we used $5,327,683 of cash to fund operations and $304,478 of cash to fund investing activities. As of December 31, 2009, we have funded our operating activities from the proceeds of the sale of shares of our equity securities and from the proceeds from a Secured Note. On March 31, 2010, we completed the sale for Insurint whereby we sold essentially all assets used in Insurint’s business for $625,000 of which $312,500 was received on April 1, 2010 and the $312,500 balance will be received in essentially 24 monthly installments commencing on May 1, 2010. In addition to the sale proceeds we will eliminate Insurint’s revenue and expense, which for the year ended December 31, 2009, was $163,783 and $1,557,901, respectively. On April 13, 2010 the Company and Co-Investment agreed to modify the terms of the Loan Agreement and the Note such that; i) the $1,250,000 Loan can be increased upon demand by the Board of Directors of Parent (with 10 days written notice) by an additional amount of up to $1,000,000 under the same terms and conditions as in the Loan Agreement and Note, and ii) the date the Loan and accrued interest will be due and payable was changed from December 22, 2010 to July 1, 2011. Management believes that our cash on hand together with the net proceeds of the March 2010 issuance of equity securities through our rights offering, the recent sale of our Insurint business combined with the modification of the Loan Agreement and Note will be sufficient to meet our cash requirements through at least the next 12 months.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
On March 31, 2008, 75,000 restricted shares of Common Stock issued to Ivan M. Spinner, the Company’s former Senior Vice President, were forfeited in accordance with the terms restricted stock grant. The forfeiture was accounted for as retirement of 75,000 shares valued at $225,000 based on the fair market value on the date of grant and recorded as a reduction to salaries, commission and related taxes, net effects are included in amortization of deferred compensation.
Pursuant to the 2009 Purchase Agreement, the Company agreed to sell to Co-Investment 1,000,000 investment units (each, a “2009 Unit”) in the 2009 Private Placement at a per 2009 Unit purchase price equal to $4.00. Each 2009 Unit sold in the 2009 Private Placement consisted of one share of Preferred Stock and a Warrant to purchase one share of Preferred Stock at an initial exercise price of $4.00 per share, subject to adjustment (the “2009 Warrant”).
On March 31, 2008, the board of directors of the Company adopted the Company's 2008 Equity Compensation Plan (the “2008 Plan”), which plan was not subject to shareholder approval. An aggregate of 1,000,000 shares of the Company’s common stock was reserved for issuance under the 2008 Plan in addition to any authorized and unissued shares of common stock available for issuance under the Company's 2006 Omnibus Equity Compensation Plan. The purpose of the 2008 Plan is to provide a comprehensive compensation program to attract and retain qualified individuals to serve as directors. The Company is authorized to award cash fees and issue non-qualified stock options under the 2008 Plan. The 2008 Plan is administered by the Company’s board of directors or the compensation committee established by the board.
The following information applies to warrants outstanding at December 31, 2009:
Mr. Verdi’s amended and restated employment agreement, as amended on March 31, 2008, provides for an initial term of one year with automatic successive one-year renewals unless we or Mr. Verdi gives the other party 60 days’ written notice prior to the end of the then current term. He is entitled to receive such employee benefits and bonus compensation as a majority of our board of directors may determine from time to time. Mr. Verdi’s base salary is $225,000 per year.
On July 7, 2006, the Company entered into a lease agreement with Radnor Properties-SDC, L.P. (the “Landlord”) for the lease of 7,414 square feet of office space located in Radnor Financial Center, Building B, 150 Radnor-Chester Road, Radnor, Pennsylvania. The term of the lease commenced on November 1, 2006, which was the date the Company, with the Landlord’s prior consent, assumed possession of the premises and the date the Landlord tendered possession of the premises to the Company following the substantial completion of the improvements required to be made by the Landlord under the lease agreement, and will expire on the last day of the 125th month following the commencement of the lease term. The annual rent increases every 12 months, starting at approximately $161,592 plus a proportionate share of landlord’s building expenses after the second month and ending at approximately $258,378 plus a proportionate share of landlord’s building expenses. Under the terms of the lease agreement, rent is waived for the first five months of the lease term with respect to 5,238 square feet and for the first twelve months for the remaining 2,176 square feet. The Company recorded a liability for deferred rent in the amount of $135,028 as of December 31, 2009.
Management re-evaluated its 2008 deferred tax assets and reduced such amounts as well as the corresponding valuation allowance by $1,958,944. The adjustments had no effect on the Company’s financial position or net income (loss) for the year ended December 31, 2008. The Company believes they will be able to utilize deferred tax assets equal to the total deferred tax liabilities. The Company has fully reserved the deferred tax asset in excess of the deferred tax liabilities due to the substantial uncertainty of the realization of any tax assets in future periods. The valuation allowance was increased by $1,757,307 from the prior year.