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November 14, 2013

Municipal Bankruptcy Fears Drive INSCOR’s Growth

Once again, word of new municipal bankruptcies is front page news. The next city to fall has actually filed for bankruptcy protection once before, after losing a multi-million dollar lawsuit while servicing big debt. Desert Hot Springs, which is near Palm Springs in California, is on the verge of a bankruptcy filing after a new finance director discovered a $3 million shortfall in its budget of $13.5 million. This is not music to the ears of its citizens or its creditors but it is a story not unfamiliar to the senior management of INSCOR, Inc. (OTCPK – IOGA - $0.415 – Spec Buy).

As is the case with municipalities such as Detroit, San Bernardino, Stockton, and many others, unmanageable and unreasonable pension costs/obligations are the culprits. Nationwide, these unfunded retiree health care and Other Post-Employment Benefits (OPEB) figures total an estimated $1.5 trillion in unfunded liabilities. Thus, it is no surprise that Detroit’s leadership is currently seeking a judge's permission to slash pension benefits. The State of Illinois is also in terrible shape. News outlets have recently reports that Illinois has a $100 billion unfunded pension liability that has resulted in credit downgrades that have left the state with the lowest ratings among all 50 U.S. states.

While it may be too late for most of these other cities to utilize the INSCOR initiatives, we believe that a number of cities and towns that are on the edge of their own financial issues have finally become proactive and are seeking alternatives such as the INSCOR program in order to stave off a fiscal crisis.

Cities that still have an opportunity to stem the OPEB bleeding in its tracks can engage in the solution used by Fortune 500 companies and offered by INSCOR that is tailored toward the 67,000 governmental and agency markets in the U.S. The INSCOR "FIT" (Financed Insurance Trust) combines the procurement of specifically-designed life insurance on active employees using funds borrowed from the financial sector, or bond issuance, and secured by the insurance policies themselves. This method generates substantial cash flow to fund these OPEB liabilities at reduced costs to the municipalities.

As a result, a FIT OPEB plan can provide a cash stream to support each year’s OPEB obligations, and fund future OPEB liabilities with fewer spending increases, tax increases, or reduction in benefits. Plus, with interest rates at historical lows, some municipalities can benefit from very low initial costs.

With few options, let alone low-cost alternatives to the problem available, INSCOR appears poised to leverage the current panic and effect real change in government financial management, thus generating significant revenue for itself. In fact, we believe that investors will begin to see the fruit of the Company’s marketing efforts in this segment via new contracts, beginning early next year. Clearly, new business would have a significant and positive impact on these shares. In anticipation of these wins, and with the backdrop of more and more municipal fiscal crisis stories, we expect investors will bid these shares up ahead of potentially favorable news.

For more information, refer to our previous sponsored IOGA Reports, Updates and Hot Topics by visiting www.GoldmanResearch.com

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Senior Analyst: Robert Goldman
Rob Goldman has over 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund.

Analyst Certification
I, Robert Goldman, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report.

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