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CompSecure, LLC

A Third-Party Administrator for Workers’ Compensation

Serving the Needs of Self-Insured Employers in Southern Oregon

Business Plan March 2003

This document contains confidential and proprietary information belonging exclusively to CompSecure, LLC.

Medford, Oregon

Kathy Caulfield BA499

Dr. Andy Dungan

Table of Contents

Page Executive Summary 1 Company Description 2-3 Industry Analysis and Trends 3-5 Target Market 6-7 Competition 7-8 Strategic Position and Risk Assessment 9-10 Marketing Plan and Sales Strategy 11-12 Operations 12-15 Management and Organization 15-17 Community Involvement/Social Responsibility 17 Development, Milestone and Exit Plan 18 Financials 19-29 Appendix 30 Bibliography 31 Additional Sources Consulted 32

Executive Summary

CompSecure is a Medford, Oregon based Limited Liability Company, which will begin operations in June of 2003. We are a service business specializing in the processing of workers’ compensation claims for Southern Oregon employers that are self-insured for workers’ compensation coverage.

Our mission as a relationship based service business is to provide precise and reliable claim processing services with a commitment to honesty and integrity. We envision ourselves as partners with our customers and pride ourselves on building and maintaining personal, trusting relationships with them. The accurate, timely processing of workers’ compensation claims for our customers will be enhanced through the knowledge and relationships we have built with the employers and medical providers within our community. It is our desire that our familiarity with Southern Oregon will allow us moderate profitability while remaining a neighbor to those we serve and a continuing positive influence in our community.

We will target the niche market of self-insured employers located in Southern Oregon, and will market ourselves as the only non-hospital organized Third-Party Administrator in the region. Our targeted niche market consists of fourteen employers from various industries with business locations ranging from Grants Pass to Ashland to Klamath Falls.

As a specialty service provider, CompSecure will reach our target market through selected target mailings, in-person meetings and networking, public relations approaches and listing with the Oregon Workers’ Compensation Division. Our marketing methods are based on our commitment to developing personal relationships with our customers.

Our direct competition comes from a number of established TPA’s offering claims processing services similar to that of CompSecure. These TPA’s are numerous but are primarily located from Portland to Eugene where approximately 90% of the 155 Oregon self-insured employers are located. These TPA’s lack the local presence and community belonging CompSecure will emphasize to the small Southern Oregon market. Indirect competition exists in the alternative workers’ compensation coverage options of private insurance or coverage with Oregon’s SAIF Corporation.

Our strategy for competing is to emphasize the strength our location in Southern Oregon will provide us over our competitors, and the value it will add to our services. We will stress our ability to provide the same quality service that employers have come to expect from their TPA, but emphasize the personal team relationship we will develop with our customers stemming from our location within the community. Our close working relationships will allow employers more control over the claims process, and our proximity to our customers provides the knowledge and security that we are “next door” and ready to tackle any problems that may surface.

CompSecure will be co-owned and operated by our general manager, Kathy Caulfield, and our Certified Claims Examiner who is yet to be identified. Mrs. Caulfield holds a bachelor’s degree in Business Administration from Southern Oregon University, and has 10 years experience working in the medical field. Our prospective claims examiner will have 5-7 years of injury claims processing experience and be responsible for medical review and claims payment determination.

Financing will be accomplished with initial owner investments of $10,000 each and supplemented with an additional $15,000 in short-term borrowings with 1% interest repaid to the owners within 1 year of borrowing. We project positive net income within the first 3 years with a 25% market share of Southern Oregon based on simulated premiums. This projects to approximately $141,000 in sales by the end of our third year. Repayment of owner investment will occur starting in our 4th year of operations.

Company Description

CompSecure, a Limited Liability Company, will be a Southern Oregon based Third-Party Administrator (TPA) providing workers’ compensation claims processing services for Oregon employers who have obtained state approval to be self-insured for injury claim coverage. Located in Medford, Oregon, CompSecure will begin operations in June 2003 with our principle target market being employers of Southern Oregon including the areas of Roseburg, Rogue Valley and Klamath Falls. Services CompSecure will process workers’ compensation injury claims for self-insured employers in the state of Oregon. These employers have been approved by the State as being financially able to cover the claim costs of their employees in the event of an injury while performing worker related duties. CompSecure’s function in the handling of these claims will be to collect any documentation necessary to determine acceptance or denial of each claim and determine appropriate reimbursement for disabling or time-loss injuries as outlined by Oregon Administrative Rule 436. Accepted claims and lost wages are paid from funds set aside by the employer for this sole purpose. Our working relationship with our customers allows for flexibility in the adjudication process by allowing employers to offer monetary compensation in those instances where denial of payment is legally allowed. As part of our service, we will provide quarterly claim activity reports for each customer and an annual claim summary report detailing employee, claim status, payment determination and financial details. Legal Status and Ownership CompSecure will be a Limited Liability Company abiding by the rules and regulations required to do business within Oregon. As a new business, CompSecure’s LLC status will allow for personal liability protection in the presence of financial losses while providing the flexibility of partner ownership of the company. Co-Ownership will exist equally between Kathy E. Caulfield, General Business Manager and CompSecure’s Oregon licensed Claims Examiner, who is yet to be identified. Each co-owner will provide initial investment funding of $10,000, while short-term borrowings from the owners will take place to cover initial financial shortfalls during the first year of operation. CompSecure will receive input and advice on its business activities through a bi-annual meeting of an advisory board comprised of the business owners, a local businessperson, and a member of a TPA claims association. Company Vision and Goals Our wish is to provide the employers of Southern Oregon with a local TPA to fulfill their claims processing needs. As many of the employers in this area have been forced to obtain these services in the Portland and Salem metropolitan areas, we feel our neighborhood presence will be a value to employers seeking such services from a company in their region with whom they can forge a lasting, personal relationship.

Our short term goals include: Position ourselves as a local, reliable and trustworthy TPA

Obtain 25% of the Southern Oregon self-insured market within 3 years (based on

simulated premiums)

Create a strong base of loyal customers committed to employee safety

Our long-term vision includes:

Increase our market share to 50% of the Southern Oregon market (based on

simulated premiums)

Obtain customers from outside of Southern Oregon

Remain a local business continuing to provide personal, reliable service

Industry Analysis and Trends

Size and Growth Workers’ compensation programs are designed and administered by individual states. The State of Oregon standardizes workers’ compensation insurance mandating it for nearly all employers within the state. In 1965, Oregon State legislature deemed Oregon a “three-way” state allowing workers’ compensation insurance to be acquired through three methods: insurance coverage from the Oregon state agency State Accident Insurance Fund (SAIF), insurance coverage through a private insurance company, or through employer self-insurance. In calendar year 2001, there were 24,645 accepted disabling claims reported in Oregon, resulting in a claims rate of 1.5 claims per 100 workers (Ross-Mota, 2003). Figure 1 illustrates the industries by percent that made up these claims.

Figure 3

According to the Oregon Workers’ Compensation Division (WCD), there are 155 active self-insured employers in Oregon as of February 2003. This number has remained relatively steady over the past 5 to 7 years according to Theresa Byrne of WCD’s Self- Insurer Program. Of these 155 employers, it is reported that 14 have their principle place of business in Southern Oregon (Byrne, 2003). Maturity of Oregon Industry While self-insured employers do not pay actual premiums for insurance coverage, a simulated premium is determined by the WCD to be used as a comparison method among coverage options for employers. Workers’ compensation premiums for all options in Oregon totaled $648.4 million for 2001. This is up 5.9 percent from the 2000 premium total of $612.0 million. In line with the trends throughout the United States, private insurance carriers in Oregon remain the primary provider of worker compensation benefits with 48.3 percent of the 2001 market, receiving $313.3 million of premiums. These amounts are down from 2000 and represent the third consecutive year this segment has realized a loss in share. Oregon’s State Accident Insurance Fund (SAIF) ranks second in premiums earned in 2001 with $249 million and a market share of 38.4 percent, reflecting an increase in both areas for the second year in a row after experiencing decreases for the four previous years. Self-insured employers experienced a decrease in market share from 14.1 percent in 2000 to 13.3 percent in 2001, their lowest since 1986. Self-insurers’ mock premiums were estimated at $86.1 million in 2001, down 0.3 percent from 2000’s total of $86.4 million. (Figure 2 illustrates)

Figure 2

There are 22 active Third-Party Administrator companies currently handling workers’ compensation claims for self-insured employers in Oregon as indicated by Doug Brown of the WCD (Brown, 2003). This number reflects both the industry and self-insured employer market in that it is stable in both number and constituents. The worker’s compensation industry in Oregon is stable in its maturity and remains relatively healthy. The Insurance Division of the Department of Consumer and Business Services indicates, “Rates are not excessive and are still adequate to allow workers’ compensation carriers to make a profit in Oregon” (Legislative Revenue Office, 2000). Vulnerability to Economic/Financial Factors Workers’ compensation insurance is generally stable in that Oregon requires the presence of this insurance for the protection of workers. However, economic factors create vulnerabilities that can cause fluctuations in the number of individuals working and therefore fluctuations in the number of employees covered by workers’ compensation insurance. Shifts in the make-up of employment occupations of a region can affect compensation costs associated with changes in the numbers and types of injuries that occur. The type of insurance coverage an employer chooses can be affected by their current economic situation. Employers discouraged with the high cost of premiums associated with insurance carriers may find self-insured coverage to their liking, but only if they are able to support the necessary cash flows required to cover “out-of-pocket” coverage of claims and the associated fees of a third party administrator. Regulatory Issues The Insurance Division of the Department of Consumer and Business Services (DCBS) regulates the workers’ compensation insurance industry. The Workers’ Compensation Division has standards set for TPA’s that require certification as a workers’ compensation claims examiner in order to handle and process claims for self-insured employers as well as certification requirements of employers to be self-insured. Legislature has a history of making changes to the worker’s compensation system with the most significant changes occurring as recently as 2001 that reduced the time allowed for denial or acceptance of claims from 90 days to 60 days, and increasing assigned rates for degrees of disability. Any changes in Oregon workers’ compensation legislation will affect this industry from little to severe depending on the area it affects whether licensing, claims and benefits processing, employer requirements, or other. Technological Factors TPA companies throughout the United States are making use of technological advances in electronic data interchange to rapidly exchange medical, claim and financial data among parties involved in the claims process. Many are utilizing either software applications, database applications or both that can allow for rapid, accurate processing of claims while providing an employer direct access to their business claim activity and history online. While these advances allow for quick, reliable processing and payment to take place, self-insured employers and medical providers may not justify the costs associated with system requirements necessary for certain applications.

The Target Market

As an Oregon Third Party Administrator (TPA), CompSecure will target self-insured employers within Oregon, most specifically those located in and surrounding the Rogue Valley of Southern Oregon. Businesses that utilize the services of a TPA have been approved by the state to be self-insured for workers’ compensation insurance, and do not have a certified claims examiner on staff. Our primary focus will involve targeting the specific niche of current self-insured employers who are outsourcing their claims handling to TPA’s in cities such as Portland or Salem, and who wish to secure the services of a TPA in their area who has knowledge and relationships with local medical providers. This relatively small target market will include those businesses of Southern Oregon previously served by SAMIS, Inc. who was forced to leave the industry due to inappropriate handling of funds. It is our hope that these employers will be looking to contract with a local TPA once again. There are currently 14 self-insured employers in Southern Oregon (see Figures 3 and 4). They include city and county agencies of Jackson and Josephine Counties, Yamanouchi Consumer, Inc. (Bear Creek Corporation) and Naumes, Inc. of Medford, and Jeld-Wen, Inc. of Klamath Falls.

Figure 3 Figure 4

Oregon Self-Insured Employers by Location

Portland 41%

Portland Area 14%

Unknown 9%

Eugene 10%

Salem 10%

Roseburg 2%

Southern Oregon

Other 5%

Southern Oregon Self-Insured Employers

Medford 51%

Ashland 7%

Kalmath Falls 21%

Grants Pass 14%

Central Point 7%

Our secondary niche market will include self-insured employers outside the Southern Oregon region who desire the personal attention and relationship a small TPA like CompSecure will provide. While our main advantage will be knowledge of our customers region and familiarity with medical providers in our community, we anticipate there will be employers who desire a small company to handle their claims with the same accuracy a large company can provide while feeling they have an active role in the processing of their claims. CompSecure’s target market will also include any employers in Southern Oregon that are currently not self-insured, but have the financial resources and cash flows required to support the costs of paying for workers’ compensation claims and associated expenses as a self-insured employer. This market may be very small as many large employers in the region already hold the status of self-insured.

Our target market is not limited by employer business type or industry as nearly all

Oregon employers are required to carry workers’ compensation insurance. The Oregon labor market is expected to experience relatively slow growth over the next decade, but many of the new jobs will move from areas of lumber and wood products to those involving electronics and non-manufacturing. They will be jobs requiring knowledge of computerization and technological skills, and therefore somewhat higher wages (Ayre, 2003). This indicates that as jobs increase in Oregon, the industries they are in will change and types of injuries seen will reflect these changes.

Size and Trends of Market The number of self-insured employers in Oregon has remained stable over the last 5 to 7 years, with the greatest number located in the region from Portland to Eugene. These businesses are often large in size with over 500 employees and have implemented strong safety programs that are reflected by moderate to low workers’ compensation claims in both number and paid benefits. Self-insured employers often seek this status as they have the ability to assume the financial responsibility of covering injury claims. This allows them to save costs when compared to those associated with paying premiums for workers’ compensation insurance from the private sector or SAIF Corporation. Information is difficult to find concerning the trends associated with length of time an employer remains with any given TPA. Contracts with city and county agencies in Jackson and Josephine Counties indicate they are of an open-ended time frame with either party allowed a 30-day notice period to cancel the contract. Other employers have contracts written for the duration of 1-year.

The Competition

Competitive Position CompSecure’s competitive position exists in the opportunity to become the only local, non-hospital oriented, workers’ compensation claims processing business in Southern Oregon. With the recent exit of a successful TPA in 2002, many self-insured employers in the valley struggled to find a local company to handle their workers’ compensation claims. Many had no option but to hire TPA’s from the greater Portland area for this service and in doing so lost the skills of a TPA who has familiarity with the economics and work environment of this region as well as one who has developed relationships with medical providers in the community. CompSecure’s small business size will allow us to handle our customers’ claims in an accurate, timely fashion while retaining a strong, trusting relationship with our customer, their employees, local medical providers, and the community. Market share distribution The Workers’ Compensation Division of Oregon indicates there are currently 22 qualified Third-Party Administrators that process workers’ compensation claims for self- insured employers in Oregon. Of these, 21 are located in Northwestern Oregon, with

offices ranging from Portland to Eugene. Health Future, a Medford claims processing company serving primarily hospital and medical clientele, is the only company currently located in Southern Oregon. There appear to be 6 TPA’s currently serving portions of the market of Southern Oregon. They are: Comp Source, Inc., Crawford & Company, Health Future, LLC, Johnston & Culbertson, Inc., Pinnacle Risk Management Services, Inc., and Sedgwick Claims Management Services, Inc. Further market share breakdown by each TPA is unavailable at this time. It is anticipated by CompSecure that we will be able to obtain 25% of the Southern Oregon market, based on simulated premiums, by the end of our third business year. Refer to financial assumptions for a detailed description. Barriers to entry Barriers to entry exist in the form of numerous established TPA’s in the Portland, Salem and surrounding areas. It is possible that for many Southern Oregon employers the process of switching services back to a newly emerged, local claims processing company will be too risky. Oregon requires both state accredited certification and work experience to be licensed as a claims examiner. While achieving this is not impossible, such certification and experience supporting the examiners’ ability to accurately process claims in a timely manner will prove to eliminate some potential businesses. Future Competition Future competition threats will continue to come from larger or more established TPA’s located outside of Southern Oregon. These companies may decide to locate an office within the valley in order to provide a local examiner with the financial and resource support of a larger company. Additionally, Health Future has recently contracted with 2 employers in the region to administer their workers’ compensation claims since the exit of their TPA in 2002. It is possible Health Future may seek more non-hospital contracts within the region. As Oregon is a “three-way” state, employers may wish to pay premiums to an insurance company rather than become or remain a self-insured employer. Therefore, private insurance companies and SAIF Corporation are also competition for CompSecure.

Strategic Position & Risk Assessment

CompSecure is looking to enter an industry in Oregon that is currently represented by established TPA businesses located in the highly populated metropolitan areas in and around Portland and Salem. While these companies are able to provide claims examiner services throughout Oregon, the self-insured workers’ compensation employers of Southern Oregon, specifically in the Rouge Valley, are lacking the availability of a local Third Party Administrator to handle their claims processing needs. CompSecure’s objective is to capitalize on the following core competencies to provide service to our customers:

Timely, accurate claims processing

Personal relationships with our customers and community medical providers

Local presence in the Rogue Valley of Southern Oregon

Our strategic position has been based on evaluating the following areas:

Industry Trends

Niche Target Market Opportunity

Competitors’ Positions

Our Strength

Risks

Industry Trends Workers’ compensation coverage is, for most employees, the only means of compensation for injuries received as a result of job related duties and its presence is mandated by the State of Oregon. As premium costs continue to rise, self-insurance is a viable option of coverage for some employers. For the past 5-7 years, the number of Third-Party Administrators offering processing services has remained stable, as has the number of self-insured employers within Oregon, including Southern Oregon. Niche Target Market Opportunity CompSecure is looking to provide service to this small niche market by providing skilled workers’ compensation claims processing with our small, hometown business based on trust and respect while offering accuracy and timeliness of claims processing and payments to injured workers. Employers in this region currently must look to companies in Northwest Oregon for this service, often foregoing a close relationship connection with their TPA. By providing a location in this community, our presence will allow employers greater involvement in the review and payment process of their employees’ claims.

Competitors’ Positions The overwhelming majority of TPA’s have positioned themselves in the heavily populated northwest region of the state, where there are the greatest numbers of self- insured employers. These companies are well established and have proven their ability to process claims. A handful of these businesses currently serve the employers of Southern Oregon. Health Future has a strong presence in Medford, but has positioned itself as a processor of workers’ compensation claims for the hospital and medical community. Health Future recognizes the opportunity to provide local service to local employers, but indicated that the rapid growth required to service these employers is currently too great a task (Christianson, 2003). Our Strength Our strength will be our ability to serve the employers and employees of the community in which we live and work. Our positive relationships with the medical providers in our community will enable us to more effectively share and communicate medical information necessary to process injury claims. Our location will allow personal interaction with employer and employee, and encourage an active role of involvement by employers in the care and compensation of injured employees. Risks CompSecure is targeting a niche in Southern Oregon that experienced upheaval in 2002 from the unexpected loss of services of a local TPA to having to quickly locate services from outside the area. There is a risk that these employers may wish to remain with their current TPA and choose not to undergo changes once again. The stability, as well as stagnation, of the industry provides little growth opportunity should customers become well established and completely satisfied with their TPA. Strategic Position Upon analyzing these areas, CompSecure feels we must magnify the strength our location in Southern Oregon will provide over our competitors. We will stress our ability to provide the same quality service employers have come to expect from their current TPA, but emphasize the personal team relationship we will develop with our customers stemming from our location within the community. These close working relationships will allow employers more control over the claims process. This is especially important to those employers who wish to provide flexibility by allowing payment for otherwise deniable claims. This flexibility is one reason many choose self-insured status (Aimes, 2003). Our proximity to our customers enables face-to-face meetings, rapid transport of documentation, and provides the knowledge that we are “next door” and ready to tackle any problems that may surface.

Marketing Plan

Company’s Message CompSecure specializes in serving the self-insured employers of Southern Oregon with their workers’ compensation claims. The personal relationships we build with our customers are based on mutual trust and respect, and allow the employee conscientious business owner personal involvement in the claims payment process. Marketing Vehicles As a specialty service provider, Comp Secure will enlist specific marketing methods to reach our target market of self-insured employers. Our customers are comprised from a diverse collection of industries that have the common need for workers’ compensation claims processing. We will not employ a separate marketing force, but rather have our company owners meet with potential customers to reinforce our commitment to personal service. We will employ specific target mailing, in-person networking, public relations approaches and others in our marketing efforts. These are discussed below. Specific Target Mailing: Target mailing of informational brochures will be a primary marketing media for our initial procurement and continued efforts to reach our niche market in the region. We will describe our services and benefits related to working with a local TPA. We will offer an estimated bid of our services on request In-Person Networking: Our main marketing efforts will consist of meeting with owners and administrators of businesses on a one to one basis to discuss our services and fees, goals for assisting in the management of their injury claims, and measures to allow each employer control over their benefit finances. It will be important to show the value CompSecure will bring to their claims management while providing reliable, accurate and personal service. Public Relations: Comp Secure will utilize all available outlets for public relations media to introduce itself to the community. These outlets will include small PR articles in the Medford Mail Tribune, the Ashland Daily Tidings, and other surrounding community newspapers. We will offer our knowledge in the Business section of Sunday’s Mail Tribune in a question and answer format highlighting our business while answering questions relevant to workers’ compensation claims processing. Other Marketing Approaches: CompSecure will create a webpage providing general company information and a discussion of the service we provide with links to state and local agencies. We do not expect this site to be a great contributor to our marketing efforts, but believe it is an important aspect of running a business in today’s technology linked world. Secondly, The Workers’ Compensation Division website includes a list of Oregon Third-Party Administrators handling work related injuries. This website is informational in purpose

only, but may prove to be a positive source of potential customers at no cost to CompSecure. Additionally, we will introduce ourselves to local and state agencies involved with workers’ compensation in order to make them aware of our presence. Such entities include the Small Business Ombudsman and Oregon OSHA.

Operations

Facility Location A principle component of CompSecure’s strategic design is to be located in the vicinity of our customers’ business operations. It is our desire to provide a location that allows our customers access to our office with as minimal travel distance as possible, while at the same time allows CompSecure to provide personal, neighbor friendly service and support through knowledge of the business climate of the region. To achieve this, CompSecure will lease a 600 sq foot office space in a larger office building in the city of Medford on Biddle Road. Medford provides a central location to our customers and a location on Biddle Road will afford the closeness to numerous medical providers and occupational therapy facilities. Our office location will provide two separate spaces for the owners of the business allowing them to conduct their management and claims examiner processes while providing enough space for the occasional consultations and interviews regarding claims. Additionally, a small front greeting area will be created for our administrative assistant to perform their duties while providing pleasant area for our customers to enter. This space will provide the necessary storage space for paperwork associated with our business. Each room will be equipped with telephone hookup and high speed Internet access (either cable or DSL). As much of our business relies on the sharing of medical record documentation, our office will allow for additional hookups for fax machines. CompSecure will enter into a lease agreement for a 3-year, renewable term with monthly rental fee of $800.00. This amount will include utilities such as garbage collection, electricity and water. Claim Processing Services CompSecure will operate using a team approach to processing and paying workers compensation claims for our customers. While each member will perform specific job duties based on their knowledge, skills and appropriate certification with the State of Oregon, we will provide services to our customers as a cohesive team. We expect our office to experience underutilization (over-availability) of service resources upon initial startup. These resources will be used to procure customers seeking a local TPA to process their claims. As the TPA of a self-insured employer, it is required that our office receives Form 801 from the employer notifying us of an upcoming injury claim. We receive Form 827 from the medical provider within 3 days of treatment. Our office has 21 days to notify the Workers’ Compensation Division of any disabling claim or if a non-disabling claim is denied. As a Third-Party Administrator, Oregon law requires that we accept or deny any claim within 60 days of employer knowledge of the injury. Claims we receive may include medical only, total or partial disability, permanent or temporary, and time-loss

wages. Claims are accepted or denied by the certified claims examiner based on a variety of medical and employer documentation supplied to our office. Receipt of faxed documentation will be an integral component of our determination process. Our examiner uses various state regulation guidelines to determine appropriate compensation for disability claims and time-loss wages. Our payment process is discussed later in this section. As Oregon requires that a self-insured employer has the services of a certified examiner either on staff or under contract, we will form written agreements with employers indicating the length of contract, specifics concerning services and responsibilities, and payment type for processing services. We will offer two payment options according to the type of contract made with an employer. The first involves paying a set amount for each injury claim incident. Specific amounts will be assigned depending whether the type is a straight medical claim or involves disability or time-loss payment. This is often the least chosen option as it is difficult for an employer to estimate administrative fees for their expense budget. For this reason, CompSecure understands that most employers will wish to make a fixed monthly payment determined by historical claim data and industry associated risk. The Financial Control section describes how we receive payment. See the Workers’ Compensation Claims Process Flowchart in Appendix A for a claims process overview. Financial Control As with any business, it is important to have controls in place to ensure proper receipt of payment from our customers and means of accurate recordkeeping in order to credit the proper customer account. Most of our accounts will make monthly payments due by the last day of the month. CompSecure will establish an account with the principle use being receipt of such payments through direct deposit associated with an automatic withdraw from the employers business account, or deposits into the account by using preprinted deposit slips provided to the employer. Each transaction will be entered by our banking facility providing identification of depositing employer. We will make use of online banking access to view our account to verify each monthly deposit is completed. The use of QuickBooks Pro will be used by Kathy Caulfield to track customer payments, pay monthly expenses and otherwise manage financial aspects of the business. Customer’s Fund Financial Control It is of extreme importance to CompSecure that our customers feel confident in the security of their benefit fund accounts. Some have experienced the unfortunate consequences related to embezzlement and will be wary of sharing access to their business accounts with a third party. To this end, we will create a claims payment system that will not allow CompSecure to directly remove funds from the benefit fund accounts. Rather, as claims are processed, we will print checks from our customer’s accounts, attach minimal claim documentation for service identification, and send to the employer for them to sign the check and mail to the proper recipient. This process will lengthen the payment process slightly and will add cost due to transporting checks through courier, our delivery or employer pick-up. However, the costs will be negligible for those employers requiring control measures on their benefit accounts.

Research and Development: Remaining Current A company that has the ability to change has the ability to succeed.

The State of Oregon is the governing body over workers’ compensation and various entities in the state regulate the laws and regulations relating to claims handling and processing as well as the licensing of individuals acting as administrators to process those claims. It is of paramount importance that CompSecure remain knowledgeable in any changes made by the State of Oregon concerning rules and regulations concerning worker compensation issues. Such items include ORS 656.455 which are state laws concerning workers’ compensation as a whole, and OAR 436 which are division rules relating more specifically to the processing of workers’ compensation claims. CompSecure will capitalize on opportunities to advance our team members’ knowledge through seminar or training opportunities offered by State of Oregon governing agencies. In addition, we will continuously strive to uncover processing and payment methods that will allow us to provide quicker processing times while maintaining accuracy and integrity in all we do. Technology Workers’ compensation claims processing technology is widely varied and the extent of its use is highly dependent on the capacity of the self-insured employers to integrate technological capabilities into their systems. The opportunity for faxing to be replaced by EDI technology is great. Unfortunately, for many employers and medical providers the cost of such technology is prohibitive. In order for CompSecure to effectively and efficiently operate its business, we will utilize a claims management software application specifically designed for TPA’s and self- insured employers. JWSoftware’s FileHandler 5.1 will provide us with the ability to process workers’ compensation claims including managing the detailed adjudication process while providing us with features to manage our customer accounts involving general information as well as specific employee claim data. This application will provide information that will be used to deliver ad hoc and quarterly reports for our customers as well as the necessary reporting required under State of Oregon regulations. The cost of this application is $5,000 with a percentage of the purchase price charged as annual support/maintenance fee. FileHandler information can be obtained at www.jwsoftware.com. We will be able to run this application on one of our desktop computers. Each computer will be running on Windows Operating System XP with Windows XP Professional and QuickBooks Pro installed for any additional word processing, spreadsheet, accounting or general office procedure needs. We will link our computers together in a LAN setup with router allowing for general file sharing between team members. Insurance and Legal Many aspects of the workers’ compensation industry are regulated by the State of Oregon, and insurance requirements for a Third-Party Administrator are no exception. The DCBS-Insurance Division requires that a TPA business must carry insurance of $500,000 in errors and omissions coverage to receive a license in Oregon. This covers possible oversights or errors that may occur in the processing of a claim. Additionally, it

is recommended that general and liability insurance coverage be in effect for personal injury, disaster coverage or fraudulent employee actions. We are required to report to the state in the form of a Guaranty Contract that we have contracted with a specific employer to act in the capacity as their TPA for a specified length of time according to OAR 656. Should this agreement end, we must file notice that the Guaranty Contract is expiring. This is a term of self-insured status for the employer as well. It is necessary to fully understand all Oregon Revised Statutes and Oregon Administrative Rules for the workers’ compensation division and claims handling process. Changes in either set of laws affect our business.

Management and Organization

Principles and Key Employees

CompSecure will be a small company priding itself on the personal service it provides to its customers while helping them process their workers’ compensation claims. While we will be a small company in personnel size, each member of our team will hold a crucial position in our business structure and play a role vital to our success. Our team will promote a positive and knowledgeable environment allowing CompSecure to provide a valued service to our customers.

Kathy E. Caulfield, Co-Owner and Business Manager. Mrs. Caulfield holds a

Bachelor of Science degree in Business Administration with a Management emphasis, and a Certificate in Business Information Systems in Management from Southern Oregon University March 2003, graduating Summa Cum Laude. Her solid education background combined with 10 years experience working in the human and veterinary healthcare fields provides her with a multitude of skills necessary to co-own and manage the business aspects of the company. Kathy will be responsible for general customer account management, marketing and advertising activities, and the daily activities of managing a small service business and its’ employees. Kathy will include contacting providers and employers for documentation to assist in the claims processing procedure.

Co-Owner and Certified Claims Examiner (Immediate). In accordance with Oregon Administrative Rule 436-055, an Oregon Certified Claims Examiner will occupy this position This individual will hold an active Oregon certification with a minimum of 5 to 7 years experience to enable this position to possess the knowledge and skills necessary to process workers’ compensation claims with accuracy and promptness. This individual will be a 50% co-owner of CompSecure whose primary responsibilities will involve aspects of processing the workers’ compensation claims of CompSecure’s customers. This position will be the primary contact with employers, employees and medical providers to obtain

documentation necessary to determine acceptance or denial of injury claims. In addition, the claims examiner will facilitate the forwarding of employer benefit funds to the injured worker through submission of claims and supporting documentation to the employer for their payment. See the Operations section for details relating to claim processing and claim payment procedures. Administrative Assistant (During Year 1). This position will be responsible for supporting the daily activities of the company. Most importantly, this position may be the first interface current and potential customers may have when they contact our company. The individual in this position must be knowledgeable about our company and possess strong communication and customer service skills. Additionally, the administrative assistant will perform tasks including filing and data entry, mailing and faxing, assisting with marketing/advertising program endeavors, and office errands as requested. We will be looking for an individual with experience in the healthcare field, preferably with experience in health insurance, someone who possesses strong customer service skills and has proficiency with Microsoft Office applications.

Board of Advisors CompSecure will create a Board of Advisors whose members will be chosen for their knowledge and dedication to assist in developing strategies and decision making to advance our company’s success. Our Board of Advisors will take part in enhancing CompSecure’s company image and visibility in the region, facilitating improvements in our claims processing system by staying abreast of legislative, technological and economic changes, and ensuring profitability of our business. It is our hope that our committee members will include: Kathy Caulfield, Co-Owner and General Business Manager of CompSecure. CompSecure’s Certified Claims Examiner and Co-Owner who is yet to be determined. Geoffrey Cutler, Investment Advisor and owner of Cascade Investment Counsel, LLC in Ashland. Mr. Cutler currently serves on numerous foundation boards in the valley and his business and financial expertise will give support to our profitability goals. WCCA member. The Workers’ Compensation Claims Association (WCCA) in Portland has an objective to promote the welfare of members by developing relationships with those individuals involved with the handling of workers’ compensation claims. Consultants/Specialists CompSecure will enlist the services of consultants for both an accountant and an attorney. We will work with Dave Hyatt of Moss Adams, LLP in Medford for the purpose of preparing our annual income tax return filings. Our payroll and other financial preparations will be completed in house with the use of QuickBooks Pro software. Due to the potential for litigation connected with processing workers’ compensation claims, we will develop a relationship with a local attorney experienced in injury claims to handle any such legal actions for CompSecure.

This individual will not be on retainer, rather they will be knowledgeable about our business and available should the need arise. Management Style/Corporate Culture Kathy Caulfield firmly believes in leadership through example and this conviction will be a part of CompSecure’s management style and corporate culture. Our business dictates that certain individuals perform specific duties to comply with state regulations. However, we are a team working together for the common purpose of processing injury claims with accuracy and speed to the satisfaction of our customers, their employees and ourselves. It is this team approach that will allow us a professional and personal relationship with our customers. It will be our priority to be on the forefront of changes taking place in the industry.

Community Involvement & Social Responsibility

Company Philosophy

CompSecure will be a relationship based service business. Relationships built not only with the customers we serve, but also with the community we operate in and among the team members of our company. CompSecure’s philosophy and policies governing our community and social responsibility include:

Commitment to our customers to provide accurate, timely claims processing

without sacrificing the friendly service they will come to expect from us.

Honesty and Integrity in all aspects of our daily activities.

Responsibility for every action we take in our dealings with individuals and organizations.

Voluntary implement customer control measures related to the financial transactions necessary to the payment of injury claims.

Provide continuing education for our team members to allow CompSecure to provide service quality customer service with the most accurate up-to-date information pertaining to workers’ compensation claims administration.

Actively work to reduce and recycle waste, especially paper, that is produced by our office.

Development, Milestone & Exit Plan

Long-Term Company Goals and Strategy It is our desire to become the TPA chosen by the majority of the approximate 14 self- insured employers in Southern Oregon. We hope to obtain 50% of this market within 6 years of starting our business. Our goal is to provide a steady profit for our company while we continue to deliver quality service to our customers and maintain a reputation for excellence and integrity. Maintaining our focus on our claims management process, and not losing site of the critical success factors of trust and a strong relationship with our customers will help us accomplish this goal. We will remain a relatively small company with few employees and our visions of growth are in step with the small niche market we seek to serve. Future Milestones CompSecure will measure accomplishment of long-term goals with the following future milestones:

Sales of approximately $89,000 by the end of our first year Positive Net Income in 2005 Obtain 35% of the Southern Oregon self-insured market by 2007 By 2009, obtain 50% of our target market

Risk Evaluation The two greatest risk facing the growth and future profitability of our company comes from our competition and timing. Established TPA companies are abundant in the state and all of the employers we target are currently utilizing these services. CompSecure will need to demonstrate the benefits of working with a local TPA and provide services that satisfy the needs of our customers. Secondly, a window of opportunity has passed as many employers were suddenly left without claims management coverage in June 2002 with the sudden exit of SAMIS from the industry. Employers have entered into contracts with TPA’s that often carry terms of 1 year or more. It is important to recognize the timing of the conclusion of these contracts to market our company at the proper time. Exit Plan In the event that CompSecure does not become profitable within 5 years of operation, or our services become obsolete due to significant changes in Oregon legislation that no longer allow for self-insured employer status, CompSecure will liquidate its business entity and equally disburse any remaining positive cash value between its’ owners. Should one partner choose to exit from the business, it would prove to be a difficult endeavor to replace that individual while remaining profitable, especially in the claims examiner capacity. As such, there will be three options: 1) A suitable replacement is found to buy out the exiting partner and perform associated duties, 2) The remaining partner buys out the exiting partner, 3) CompSecure is liquidated.

Financials

CompSecure does not show accounts receivables in our financials as our customers will be making fixed monthly payments for our claims processing services. These payments are due the last day of each month for the current month services are provided. We show positive cash flows in our first year of business due to the initial investment of $20,000 from our owners combined with an additional $15, 000 in short-term borrowings from our owners. The short-term borrowings are repaid during years 1 and 2 at 1% interest. CompSecure shows a positive ending cash balance starting in year 2, with no additional borrowings or owner investment. Sales increase 40% from year one to year two, and increase 14% from years two to three. Our overall operating expenses increase 1.8% from year one to year two, and increase 10.5 % from years two to three. However, personnel salary expenses increase 12% each year while all other expenses decrease 43% between the first two years and increase by a mere .35% the next year. This difference in expense percentage is due to our purchase of a claims management software application and a large advertising expense in 2003. CompSecure will begin to make payments to our owners in our 4th year of business as a return of their initial investment.

CompSecure, LLC Pro Forma

Statement of Cash Flows for the 12 Month Period Ending

May-04 May-05 May-06 Cash Flows from Operations

Net Income (21,416)$ 9,249$ 13,950$ Depreciation 913$ 1,000$ 1,000$ Changes in Working Capital

Accounts Receivable1 -$ -$ -$ Inventories1 -$ -$ -$ Other Current Assets1 -$ -$ -$ Accounts Payable2 -$ -$ -$ Other Current Liabilities2 -$ -$ -$ Net Cash Provide by Operating Activities (20,503)$ 10,249$ 14,950$

Cash Flows from Investing Activities Purchases of Property and Equipment

Land -$ -$ -$ Buildings -$ -$ -$ Building/Leasehold Improvements -$ -$ -$ Machinery & Equipment -$ -$ -$ Automobiles -$ -$ -$ Office Equipment/Other 3,000$ -$ -$

Total Property and Equipment 3,000$ -$ -$ Acquisition of Other Assets -$ -$ -$

Net Cash Used in Investing Activities 3,000$ -$ -$

Cash Flows from Financing Activities Short-term Borrowings 15,000$ -$ -$ Repayment of Short-term Borrowings 6,900$ 8,100$ -$ Long-term Borrowings -$ -$ -$ Repayment of Long-term Borrowings -$ -$ -$ Acquire (Repay) Other Liabilities -$ -$ -$ Sale of Stock 20,000$ -$ -$ Payment of Dividends -$ -$ -$

Net Cash Provided by (Used in) Financing Activities 28,100$ (8,100)$ -$

Net Increase (Decrease) in Cash 4,597$ 2,149$ 14,950$

Plus Beginning Cash -$ 4,597$ 6,746$

Ending Cash 4,597$ 6,746$ 21,696$

1 An increase in a current asset will decrease cash (i.e. not receving cash from a sale means you have less cash) 2 An increase in a current liability will increase cash (i.e. not paying a bill means you have more cash)

CompSecure, LLC Pro Forma

Income Statement for the 12 Month Period Ending

Sales 87,750$ 100.0% 123,000$ 100.0% 141,000$ 100.0% Less Cost of Sales:

Material -$ 0.0% -$ 0.0% -$ 0.0% Labor (including benefits) -$ 0.0% -$ 0.0% -$ 0.0% Other Cost of Sales -$ 0.0% -$ 0.0% -$ 0.0% Total Cost of Sales -$ 0.0% -$ 0.0% -$ 0.0%

Gross Profit 87,750$ 100.0% 123,000$ 100.0% 141,000$ 100.0%

Operating Expenses Personnel 84,443$ 96.2% 94,818$ 77.1% 106,530$ 75.6% Depreciation 913$ 1.0% 1,000$ 0.8% 1,000$ 0.7%

9,600$ 10.9% 9,600$ 7.8% 9,600$ 6.8% -$ 0.0% -$ 0.0% -$ 0.0%

480$ 0.5% 480$ 0.4% 480$ 0.3% 210$ 0.2% -$ 0.0% -$ 0.0%

2,004$ 2.3% 2,010$ 1.6% 2,020$ 1.4% 4,992$ 5.7% 900$ 0.7% 900$ 0.6%

500$ 0.6% 500$ 0.4% 500$ 0.4% 130$ 0.1% 65$ 0.1% 110$ 0.1% 495$ 0.6% 420$ 0.3% 420$ 0.3%

1,100$ 1.3% 200$ 0.2% 200$ 0.1% 2,025$ 2.3% 500$ 0.4% 500$ 0.4%

Other Operating Expenses 2,147$ 2.4% 1,467$ 1.2% 1,473$ 1.0% Total Operating Expenses 109,039$ 124.1% 111,960$ 91.0% 123,733$ 87.7%

Earnings Before Interest and Taxes (21,289)$ -24.1% 11,040$ 9.0% 17,267$ 12.3%

Interest Expense 127$ 0.1% 41$ 0.0% -$ 0.0% Other Expense (Income) -$ 0.0% -$ 0.0% -$ 0.0%

Earnings Before Taxes (21,416)$ -24.2% 10,999$ 9.0% 17,267$ 12.3%

Income Taxes -$ 0.0% 1,750$ 1.4% 3,317$ 2.4%

Net Income (21,416)$ -24.2% 9,249$ 7.6% 13,950$ 9.9%

Return on Sales -24.41% 7.52% 9.89%

Return on Assets -320.41% 118.08% 64.04%

Return on Equity 1512.43% 118.08% 64.04%

Internet Service Telephone

Auto Expense(Gas/mileage) Advertising/Marketing Office Equipment / Supplies

May-04 May-05 May-06

E&O/Liability Insurance Claim Software & Support Accountant License Fees

Office Lease Payment Utilities (water/garbage/electric)

May-04 May-05 May-06

Assets Cash 4,597$ 6,746$ 21,696$ Accounts Receivable -$ -$ -$ Inventory -$ -$ -$ Other Current Assets -$ -$ -$

Total Current Assets 4,597$ 6,746$ 21,696$ Property and Equipment

Land -$ -$ -$ Buildings -$ -$ -$ Building/Leasehold Improvements -$ -$ -$ Machinery & Equipment -$ -$ -$ Automobiles -$ -$ -$ Office Equipment/Other 3,000$ 3,000$ 3,000$

Total Property & Equipment 3,000$ 3,000$ 3,000$ less acculumlated depreciation (913)$ (1,913)$ (2,913)$

Total Fixed Assets 2,087$ 1,087$ 87$ Other Assets -$ -$ -$

Total Assets 6,684$ 7,833$ 21,783$

Liabilities and Equity Accounts Payable -$ -$ -$ Short-term Loans Payable 8,100$ -$ -$ Other Current Liabilities -$ -$ -$

Total Current Liabilities 8,100$ -$ -$ Long-term Debt -$ -$ -$ Other Liabilities -$ -$ -$

Total Liabilities 8,100$ -$ -$

Equity Stock and Paid-in Capital 20,000$ 20,000$ 20,000$ Retained Earnings -$ (21,416)$ (12,167)$ Current Year Earnings (21,416)$ 9,249$ 13,950$

Total Equity (1,416)$ 7,833$ 21,783$

Total Liabilities and Equity 6,684$ 7,833$ 21,783$

Debt/Equity -572.0% 0.0% 0.0%

Debt/Total Assets 121.2% 0.0% 0.0%

CompSecure, LLC Pro Forma

Balance Sheet for the Period Ending

CompSecure, LLC Pro Forma

Breakeven Analysis for the 12 Month Period Ending

May-04 May-05 May-06

Summary of Income Statement By Cost Type

Sales 87,750$ 123,000$ 141,000$ Variable Costs Variable Cost of Sales -$ -$ -$ Variable Operating Costs -$ -$ -$ Variable Interest, Taxes and Other -$ 1,750$ 3,317$

Total Variable Costs -$ 1,750$ 3,317$

Contribution to Fixed Costs 87,750$ 121,250$ 137,683$

Fixed Costs Fixed Cost of Sales -$ -$ -$ Fixed Operating Costs 109,039$ 111,960$ 123,733$ Fixed Interest, Taxes and Other 127$ 41$ -$

Total Fixed Costs 109,166$ 112,001$ 123,733$

Net Profit (Loss) (21,416)$ 9,249$ 13,950$

Margins Analysis

Variable Cost per $ of Sales -$ 0.01$ 0.02$ Amount available per $ of Sales to Pay Fixed Costs 1.00$ 0.99$ 0.98$

Contribution Margin 100.00% 98.58% 97.65%

Breakeven Analysis

Breakeven Sales based on EBIT 109,039.00$ 113,572.73$ 126,710.70$

Breakeven Sales Based on All Expenses 109,166.00$ 113,614.32$ 126,710.70$

May-04 May-05 May-06

Short-term Solvency Current ratio (CA/CL) 0.57 Quick ratio (CA-inventory/CL) 0.57 Cash ratio (Cash/CL) 0.57

Long-term Solvency Total Debt ratio (TL/TA) 1.21 0.00 0.00 Debt-Equity ratio (TL/TE) -5.72 0.00 0.00 Equity Multiplier (TA/TE) -4.72 1.00 1.00 Times Interest Earned (EBIT/interest) -167.63 269.27 Cash Coverage (EBIT+depreciation/Interest) -160.44 293.66

Asset Untilization Inventory Turnover (CGS/inventory) Days' Sales in Inventory (365/Inventory Turnover) Receivable Turnover (sales/AR) Days' Sales in receivables (365/ Receivable Turnover) Total Asset Turnover (sales/TA) 13.13 15.70 6.47 Capital Intensity (TA/sales) 0.08 0.06 0.15

Profitability Ratios Profit Margin (NI/sales) -24.41% 7.52% 9.89% ROA (NI/TA) -320.41% 118.08% 64.04% ROE (NI/TE) 1512.43% 118.08% 64.04%

Dupont Identity ROE=(Profit Margin)(TA Turnover)(Equity Mulitpler) 1512.43% 118.08% 64.04%

Market Value Ratios EPS (NI/# shares) PE ratio (price per share/EPS) Market to Book (market value/book value)

Ratios

CompSecure, LLC Pro Forma

Statement of Cash Flows Annual for the Month Ending Total

Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 May-04 Cash Flows from Operations

Net Income (9,409)$ (6,315)$ (5,165)$ (5,060)$ (60)$ (171)$ (171)$ 556$ 1,079$ 1,107$ 1,082$ 1,111$ (21,416)$ Depreciation -$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 913$ Changes in Working Capital

Accounts Receivable1 -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Inventories1 -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Other Current Assets1 -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Accounts Payable2 -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Other Current Liabilities2 -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Net Cash Provide by Operating Activities (9,409)$ (6,232)$ (5,082)$ (4,977)$ 23$ (88)$ (88)$ 639$ 1,162$ 1,190$ 1,165$ 1,194$ (20,503)$

Cash Flows from Investing Activities Purchases of Property and Equipment

Land -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Buildings -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Building/Leasehold Improvements -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Machinery & Equipment -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Automobiles -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Office Equipment/Other 3,000$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 3,000$

Total Property and Equipment 3,000$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 3,000$ Acquisition of Other Assets -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Net Cash Used in Investing Activities 3,000$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 3,000$

Cash Flows from Financing Activities Short-term Borrowings -$ 15,000$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 15,000$ Repayment of Short-term Borrowings -$ -$ -$ -$ -$ -$ -$ -$ -$ 2,300$ 2,300$ 2,300$ 6,900$ Long-term Borrowings -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Repayment of Long-term Borrowings -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Acquire (Repay) Other Liabilities -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Sale of Stock 20,000$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 20,000$ Payment of Dividends -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Net Cash Provided by (Used in) Financing Activities 20,000$ 15,000$ -$ -$ -$ -$ -$ -$ -$ (2,300)$ (2,300)$ (2,300)$ 28,100$

Net Increase (Decrease) in Cash 7,591$ 8,768$ (5,082)$ (4,977)$ 23$ (88)$ (88)$ 639$ 1,162$ (1,110)$ (1,135)$ (1,106)$ 4,597$

Plus Beginning Cash -$ 7,591$ 16,359$ 11,277$ 6,300$ 6,323$ 6,235$ 6,147$ 6,786$ 7,948$ 6,838$ 5,703$ -$

Ending Cash 7,591$ 16,359$ 11,277$ 6,300$ 6,323$ 6,235$ 6,147$ 6,786$ 7,948$ 6,838$ 5,703$ 4,597$ 4,597$

Dungan

CompSecure, LLC Pro Forma

Income Statement Annual for the Month Ending Total

Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 May-04

Sales -$ 1,500$ 4,000$ 4,000$ 9,000$ 9,000$ 9,000$ 10,250$ 10,250$ 10,250$ 10,250$ 10,250$ 87,750$ 100.0% Less Cost of Sales:

Material -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0% Labor (including benefits) -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0% Other Cost of Sales -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0% Total Cost of Sales -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0%

Gross Profit -$ 1,500$ 4,000$ 4,000$ 9,000$ 9,000$ 9,000$ 10,250$ 10,250$ 10,250$ 10,250$ 10,250$ 87,750$ 100.0%

Operating Expenses Personnel 5,578$ 5,578$ 7,251$ 7,251$ 7,251$ 7,362$ 7,362$ 7,362$ 7,362$ 7,362$ 7,362$ 7,362$ 84,443$ 96.2% Depreciation -$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 83$ 913$ 1.0%

800$ 800$ 800$ 800$ 800$ 800$ 800$ 800$ 800$ 800$ 800$ 800$ 9,600$ 10.9% -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0%

40$ 40$ 40$ 40$ 40$ 40$ 40$ 40$ 40$ 40$ 40$ 40$ 480$ 0.5% 70$ 70$ 70$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 210$ 0.2%

167$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ 2,004$ 2.3% 416$ 416$ 416$ 416$ 416$ 416$ 416$ 416$ 416$ 416$ 416$ 416$ 4,992$ 5.7%

-$ -$ -$ -$ -$ -$ -$ 500$ -$ -$ -$ -$ 500$ 0.6% 130$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 130$ 0.1%

60$ 60$ 60$ 35$ 35$ 35$ 35$ 35$ 35$ 35$ 35$ 35$ 495$ 0.6% 300$ 300$ 100$ -$ 100$ -$ 100$ -$ 100$ -$ 100$ -$ 1,100$ 1.3%

1,500$ 100$ -$ 100$ -$ 100$ -$ 75$ -$ 75$ -$ 75$ 2,025$ 2.3% -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0% -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0% -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0% -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0%

Other Operating Expenses 348$ 195$ 165$ 155$ 155$ 155$ 155$ 203$ 155$ 153$ 155$ 153$ 2,147$ 2.4% Total Operating Expenses 9,409$ 7,809$ 9,152$ 9,047$ 9,047$ 9,158$ 9,158$ 9,681$ 9,158$ 9,131$ 9,158$ 9,131$ 109,039$ 124.1%

Earnings Before Interest and Taxes (9,409)$ (6,309)$ (5,152)$ (5,047)$ (47)$ (158)$ (158)$ 569$ 1,092$ 1,119$ 1,092$ 1,119$ (21,289)$ -24.1%

Interest Expense -$ 6$ 13$ 13$ 13$ 13$ 13$ 13$ 13$ 12$ 10$ 8$ 127$ 0.1% Other Expense (Income) -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0%

Earnings Before Taxes (9,409)$ (6,315)$ (5,165)$ (5,060)$ (60)$ (171)$ (171)$ 556$ 1,079$ 1,107$ 1,082$ 1,111$ (21,416)$ -24.2%

Income Taxes -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 0.0%

Net Income (9,409)$ (6,315)$ (5,165)$ (5,060)$ (60)$ (171)$ (171)$ 556$ 1,079$ 1,107$ 1,082$ 1,111$ (21,416)$ -24.2%

Office Lease Payment Utilities (water/garbage/electric) Internet Service Telephone E&O/Liability Insurance Claim Software & Support Accountant License Fees

Oper exp 13 Oper exp 14 Oper exp 15

Auto Expense(Gas/mileage) Advertising/Marketing Office Equipment / Supplies Oper exp 12

Dungan

CompSecure, LLC Pro Forma

Beginning Balance Sheet Balance for the Month Ending

May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04

Assets Cash -$ 7,591$ 16,359$ 11,277$ 6,300$ 6,323$ 6,235$ 6,147$ 6,786$ 7,948$ 6,838$ 5,703$ 4,597$ Accounts Receivable -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Inventory -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Other Current Assets -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Total Current Assets -$ 7,591$ 16,359$ 11,277$ 6,300$ 6,323$ 6,235$ 6,147$ 6,786$ 7,948$ 6,838$ 5,703$ 4,597$ Property and Equipment

Total Property & Equipment -$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ less acculumlated depreciation -$ -$ (83)$ (166)$ (249)$ (332)$ (415)$ (498)$ (581)$ (664)$ (747)$ (830)$ (913)$

Total Fixed Assets -$ 3,000$ 2,917$ 2,834$ 2,751$ 2,668$ 2,585$ 2,502$ 2,419$ 2,336$ 2,253$ 2,170$ 2,087$ Other Assets -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Total Assets -$ 10,591$ 19,276$ 14,111$ 9,051$ 8,991$ 8,820$ 8,649$ 9,205$ 10,284$ 9,091$ 7,873$ 6,684$

Liabilities and Equity Accounts Payable -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Short-term Loans Payable -$ -$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 12,700$ 10,400$ 8,100$ Other Current Liabilities -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Total Current Liabilities -$ -$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 12,700$ 10,400$ 8,100$ Long-term Debt -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Other Liabilities -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Total Liabilities -$ -$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 15,000$ 12,700$ 10,400$ 8,100$

Equity Stock and Paid-in Capital -$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ Retained Earnings -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Current Year Earnings -$ (9,409)$ (15,724)$ (20,889)$ (25,949)$ (26,009)$ (26,180)$ (26,351)$ (25,795)$ (24,716)$ (23,609)$ (22,527)$ (21,416)$

Total Equity -$ 10,591$ 4,276$ (889)$ (5,949)$ (6,009)$ (6,180)$ (6,351)$ (5,795)$ (4,716)$ (3,609)$ (2,527)$ (1,416)$

Total Liabilities and Equity -$ 10,591$ 19,276$ 14,111$ 9,051$ 8,991$ 8,820$ 8,649$ 9,205$ 10,284$ 9,091$ 7,873$ 6,684$

Dungan

Financial Assumptions

The financial figures on the previous statements are based on the following assumptions: Sales Assumptions Sales assumptions were difficult to determine with financial statements not publicly available, nor readily shared, for currently existing TPA businesses. CompSecure’s sales were derived from the following data graph provided by the DCBS. It shows a breakdown by volume groups of simulated premiums paid by self-insured employers in Oregon in 2000.

Interviews with area employers revealed all paid between $10,000 and $100,000 annually for administrative fees to their TPA. In 2000, 33 self-insured employers paid approximately $2 million. It was then derived that $2 million / 33 employers = $60,000 “average annual premium”. Many employers paid below $60,000 annually so it was approximated that by multiplying 9 employers by $60,000, the Southern Oregon annual premium for 2000 equaled $540,000. CompSecure’s goal is to obtain 25% of this market based on premiums by the end of our third year. Therefore, it was estimated our 2006 sales to be approximately $135,000 ($540,000 * .25 = $135,000) with a slight increase added to bring estimates into 2003. Our actual sales breakdown assumes we will have contracts with 5 employers by the end of 2006 with the following schedule: Date Started Employer Annual “Premium” Monthly “Premium” July 2003 $18,000 $1500 August 2003 $30,000 $2500 October 2003 $50,000 $4170 January 2004 $15,000 $1250 2006 $18,000 $1500 Results show May 2004 sales equal $87,750; May 2005 sales equal $123,000; and May 2006 sales equal $141,000.

Cash Flow Initial investment will be required of each owner in the amount of $10,000 as sale of stock to provide CompSecure with cash of $20,000. This will be used for start-up expenses and provide initial positive net cash. Customers will make payments to CompSecure at the end of every month. For this reason, it is important to have adequate cash available to pay for operating expenses and other obligations that occur throughout the month. In addition to the sale of stock, combined short-term borrowings of $15,000 are required from our owners to help cover business expenses until our sales income is able to adequately cover them. These short-term borrowings will be repaid with 1 year with an interest rate of 1%. Operating Expenses Insurance: Errors and Omissions insurance coverage of $500,000 is required by the state for licensing in Oregon. The annual insurance premium quoted by Reinholdt and O’Harra Insurance of Ashland is $1500 for O&E coverage with an additional $500 premium for general liability and employee dishonesty coverage. We anticipate this amount will increase somewhat each year. License Fees: There is an annual Oregon Claims Examiner license fee of $65 and a biannual $45 TPA Oregon business license fee required to do business in Oregon. To register CompSecure as an LLC in Oregon, there is a $20 fee. Advertising: CompSecure is targeting a small niche market. Our advertising dollar will be greatest as we introduce ourselves to this niche and decrease dramatically once employers are aware of our presence and the service we provide. Excessive advertising will be time consuming, costly and may be thought of as pushy by our target customers. Advertising expenses include costs associated with providing lunch/dinner meetings with potential customers, mailings specifically sent to the 14 members of our target market, a listing in telephone directories with no display ad. Lease: Commercial Property Management indicates a lease amount of approximately $1.35/ sq foot for office rental space in Medford, many times with utilities included in this amount. Office Equipment/Supplies: We will experience initial high expense due to start up costs. Monthly costs include usual supplies such as paper, printer and fax ink, supplies and maintenance, and general office supplies. Telephone: Expenses include a basic calling plan. Initial expenses are high due to the long distance calls we expect to make to potential customers outside of our local calling area. Miscellaneous Expenses: To prepare for any miscellaneous expenses, we have included an additional assumption of approximately 10% of monthly costs minus salaries and depreciation.

Bibliography

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Thunderbird Markets]. Ayre, A. 2003, March. Ten Important Workforce Trends In Oregon. Retrieved February 15,

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insured employers’ workers’ compensation claims. Retrieved January 10, 2003 from the Oregon Workers’ Compensation Division Web site: http://www.cbs.state.or.us/

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Additional Sources Consulted

Cutler, E. 2003, January 15. [Personal Interview with Ellen Cutler, VP of Human Resources,

Bear Creek Corporation].

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Reinke, D. (2002) Oregon Workers’ Compensation Premiums, 2001. Retrieved February 20,

2003 from the Department of Consumer and Business Services, Research and Analysis Section Web site: http://www.cbs.state.or.us/imd/rasums/2059/01web/01_2059.pdf