Xcel Associates Announces Investment Opinion on INSCI Corp.

HAZLET, N.J.--(BUSINESS WIRE)--June 15, 1999--

The Following is a Research Report Issued by Xcel Associates

on INSCI Corp.:

-0-

Initial Report                                          June 15, 1999
STRONG BUY RECOMMENDATION                William N. Walling, Jr., CFA
                              INSCI CORP
                         (Nasdaq-INSI-$4 3/4)
===============================================================
KEY STOCK DATA
Price (6/15/99):                         $4 3/4
52-week High/Low:                        $ 5 - $ 9/16
Common Shares Outstanding:               7.54 million
Common Shares Float:                     5 million (approx.)
Market Capitalization:                   $35.8 million
Daily Trading Volume:                    115,000 shares
Long-term Debt (12/31/98):               Nil
Shareholders' Equity (12/31/98):         $4.8 million
Long-term Debt/Equity (12/31/98):        Nil
Dividend:                                Nil
Book Value (12/31/98)/Share:             $0.64
Revenue (FY1998)/Share:                  $1.30
Revenue (FY1999E)/Share:                 $1.62



Period        Rev.   Net Inc.   EPS
------        ----   -------   ----
(3/31 FY)     (Mil.) (Mil.)
3/31/96A      $7.9    $(1.5) $(0.53)
3/31/97A      11.4     (0.9)  (0.62)
3/31/98A       9.8     (2.5)  (0.73)
3/31/99E      12.2     (0.8)  (0.19)
3/31/00E      18.0      1.6    0.20
3/31/01E      25.0      2.6    0.35

Price/Earnings (FY2000E):      23.8x
Price/Earnings (FY2001E):      13.6x
Dividend Yield:                Nil
Price/Book Value (12/31/98):   7.4x
Market Cap./Revenue (FY1999E): 2.9x
(FY1999E)
Market Cap./Revenue (FY2000E): 2.0x
(FY2000E)

A - Actual                 E - Estimate (by XCEL Associates)

SUMMARY AND CONCLUSION

INSCI Corp ("INSI" or the "Company") is a small--though already leading--provider of an integrated suite of software products. These focus on electronic document archiving and retrieval and related management applications for large-volume, high-value documents at the user enterprise level. We strongly recommend purchase of INSI common shares for their outstanding capital appreciation potential, both near term and long term. Our one-year Target Price for INSI is $10 per share -- more than a double from $4 3/4 currently.

INSI enjoys technological leadership in its niche, including the ability to store and retrieve high volumes of printed documents, a capability presently shared only with IBM (IBM-$115 1/2). Its flagship product, COINSERV, is based on open client-server architecture that is scaleable with other leading platforms, most notably Windows NT. In fact, its COINSERV for Windows NT was selected as "Product of the Year" in its category by Imaging and Document Solutions Magazine in its January 1999 issue. More important, INSI enjoys strategic marketing relationships with several important corporate partners. These include: Unisys (UIS-$37 7/16), Xerox (XRX-$58 3/16), and Moore (MCL-$8 5/8)-- which together account for over one-third of INSI'S revenues. Further, in April 1999, XEROX selected INSI to be part of its integrated financial services solution suite for e-commerce-Internet presentment and payment. The Company has over 500 clients, including other blue ribbon users in many industries, but primarily in financial services and telecommunications.

It appears to us that INSI's core products have reached an important maturation point in both their development and market acceptance: sales in the first three quarters of FY3/31/99 soared 43% and a profit was earned in the last quarter. We expect strong revenue momentum to be sustained over the next few years, which seems likely to move earnings solidly into the black in FY2000/FY2001. Besides augmenting an already respectable balance sheet, the advent of earnings would herald a new era--after previous years of substantial losses during product development and a critical transition to Windows NT. Nevertheless, our primary investment thesis about INSI is its technological prowess and the fundamental implications thereof, not the $.20/$.35 of EPS we forecast for FY2000/2001.

XCEL's Strong Buy Recommendation of INSI is principally based on three investment considerations:

1. INSI, though small, has a leading technology position in a product market apparently destined to increase many-fold over the next decade. We attribute this to a combination of management's vision, persistence, and execution at the micro level in concert with the exploding presence of the Web, the Internet, and on line. Paper and microfiche were already going to digital storage, which is dramatically cheaper and much faster and more convenient; but, the Web is accelerating this. Meanwhile, both on line and the Web are new driving forces in retail sales. INSCI's COINSERV is the necessary "digital back office" tie-in to the Internet, which supports E-commerce. Thus, INSI is an investment play on converging industry developments of mammoth proportions.

2. INSI has distinct takeover investment appeal, in our opinion, presumably at a substantially higher price. INSI's combination of technology leadership and early-to-market presence is the ingredient of probable success as an independent company. But, these same virtues offer appeal to a larger acquirer, who could bring deeper pockets and greater distribution strengths to promote INSI's exciting technology. As a generalization, the merger and acquisition boom of the 1990s has emphasized such strategic synergies (unlike the LBOs of the 1980s). More specifically, INSI has already been cited in the computer industry press for its vital technology and, therefore, takeover attraction. Further, INSI already has several strategic marketing partnerships, including those with Unisys, Xerox, and Moore. And, other companies in the printing equipment, document management, and outsource printing fields could see a strategic fit with INSCI. So, clearly the conditions are present which often trigger a takeover attempt. But, none of this necessarily foretells such an outcome and not all romances make it to the altar. Nonetheless, we believe that a takeover theme has merit and that it is not much reflected in the $4 3/4 price. However, we regard it as a complementary investment thesis that is secondary to that of INSCI's undervalued technological position.

3. We believe INSI has the necessary attributes to gain broader investor recognition and a higher market valuation. In our opinion, INSI is "underfollowed/underowned/and undervalued." (These features often go together.) INSI's market cap is already up nine-fold from $.56 per share in summer 1998, which should attract attention, and its products are doing very well.

There are few "sure things" in the stock market. Our two main risk issues are:

1. INSI's position could be leap-frogged over time.

- This is always a risk in the modern technology era, when product

cycles are shorter.

- But INSI's technology is complex because it is interdisciplinary

and integrative-- and not easily replicable.

2. INSI's share price is volatile.

- As a microcap stock, it can be particularly susceptible to

general market crunches or investors' evaluation of "tech

stocks."

- But, volatility also implies upside potential. Further, INSI is

an "event stock" whose future fortunes are usually far more tied

to its microeconomics than to broad stock market forces. We

expect INSC to "print" (digitally and otherwise) a lot of good

news for its shareholders over time!

William N. Walling, Jr., CFA

Director of Research

William N. Walling, Jr., CFA, Consultant - About The Analyst

Mr. William Walling, Jr., a Chartered Financial Analyst, has several decades of experience on the brokerage and fiduciary sides of the investment profession. These positions include Vice President at White, Weld and Shearson and former Trust Investment Officer at Empire Trust Company and Southeast Bank. He is a former four-time member of the "Institutional Investor Magazine" All-America Research Team.

The information and statistical data herein have been obtained from the company covered in this report and from other sources believed to be reliable but in no way are warranted by us as to accuracy or completeness. Xcel Associates, Inc. or their officers, directors, analysts, employees or consultants have been compensated and may have positions in these securities.