Quorum Information Technologies Inc Security Analysis April 25

Quorum Information Technologies Inc. Security Analysis April 25, 2016 Analysts: Muneeb Ahmed All figures shown in $CAD unless otherwise noted

Executive Summary Recommendation: BUY - $0. 58 Target (39% Margin of Safety) Acquisition-heavy industry: Trading well below comparable company and precedent transaction multiples Insider customers: Dealership group recently purchased large stake in company and joined the board Gloves are off: Competitor leaving Canadian market will grow total rooftops by at least 10 -15% by 2017 Key Statistics 20% 0% Share Price (2016 -04 -25) -20% Market Cap -40% Beta (5 year vs. TSXV) -60% S/O -80% 52 Week Range -100% 2006 2007 2008 2009 2010 QIS Executive Summary Company 2011 2012 2013 2014 2015 TSX Venture Industry Outlook Investment Thesis $0. 42 $21, 544, 444 0. 22 51, 296, 294 $0. 25 -$0. 49 Revenue CAGR (5 year) 6. 8% EV/EBITDA 9. 76 x EV/Recurring Revenue 1. 86 x Valuation Risks

Company Overview Business Description XSELLERATOR Automotive Dealer Management System (DMS) Software • • • New Installations Support Plus Support 73% of revenue ~$2, 500 monthly subscription fee per “rooftop” $0. 06 per instant message sent to customer • 10% of revenue • database of training and optimization options • $700 + $30 per user per month Management • 8% of revenue • $35, 000 -$40, 000 one-time setup fee per rooftop • Includes Microsoft SQL cloud server license Skin In the Game • Management’s interests are aligned with shareholders President and CEO – Maury Marks (1996 – present) • Family owned dealership growing up • Former Deloitte technology consultant 2014 Executive Compensation Director – Joe Campbell (2015 - present) • President and CEO of 170 -dealership automotive group that owns ~10% of Quorum Salary VP Sales and Marketing – Mark Allen (2007 – present) • Led launch of GM’s Integrated DMS Program • Founder of three start-ups Business Description Executive Summary Company Industry Outlook Share-based awards Annual incentive plans 3 Investment Thesis Valuation Risks

Company Overview Competitive Advantages Gross Margins • Integrated with most major OEMs as well as numerous third parties • Windows-based software doesn’t require data to be reentered • High dealership satisfaction levels create sticky customers – 2% churn rate • Make More Money (3 M) feature created $51, 321 of incremental revenue per participating dealership in 2015 65% 70% 59% 2013 65% 62% 2014 Support 68% 59% 2015 Support Plus 70% 65% 60% 2016 E 2017 E New Implementation (0%) Historical Performance Rooftops Revenue ($ MM) 360 Business Description Executive Summary 11. 9 11. 3 11. 6 Company 4 Investment Thesis E 20 18 E E 20 17 20 16 15 20 20 13 20 12 Valuation 14 8. 0 7. 6 20 11 20 10 20 09 20 08 7. 7 7. 3 20 07 20 E 20 17 E 20 18 E 15 20 16 Industry Outlook 9. 2 8. 5 8. 2 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 201 20 240 226 222 2007 -2015 CAGR: 3% 303 286 270 273 382 10. 7 2007 -2015 CAGR: 4. 7% 254 371 Risks

Company History Not your typical “penny stock” $ 3. 50 $ 3. 00 $ 2. 50 $ 2. 00 $ 1. 50 $ 1. 00 $ 0. 50 Founded by Maury Marks, current President and CEO Business Description Executive Summary Quorum goes public at $0. 30/share Company enters U. S. market and develops a direct, collaborative relationship with GM and Microsoft Industry Outlook 90% of rooftops are GM dealerships. GM files for bankruptcy and share price touches $0. 01 5 Investment Thesis Miraculously, Quorum only loses 4 rooftops in 2009 and the company rebounds from 222 to 240 rooftops Valuation 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 19 96 $- Quorum invests heavily into integration with other OEMs and begins posting record profit numbers Risks

Porter’s Five Forces Threat of New Entry (3) • Requires collaboration and cooperation with OEMs Software industry is asset-light and can be easily disrupted • Supplier Power (2) • • XSELLERATOR is integrated with a number of partners No one partner is integral to the success of the software Buyer Power (4) Competitive Rivalry (3) • • Industry has very low churn rate Quorum is prone to buyer concentration risk • • 59% of customers are GM dealerships Reynolds & Reynolds was able to retain 90% of dealerships when GM dropped them in 2008 Threat of Substitution (2) • • Executive Summary Company Many competitors but industry has very low churn rate Quorum is already one of the lowest-cost options in the industry Industry Outlook 6 Investment Thesis Valuation Risks

Industry Outlook § § § ~20, 100 automobile dealerships in North America Top two DMS software providers (CDK Global and Reynolds & Reynolds) have 80% of rooftops in North America Franchising laws require OEMs to sell vehicles through dealerships Total Addressable Market (TAM) 14000 Manufacturer 11978 12000 10284 10669 6000 6324 Total United States* 380 250 185 150 360 130 70 275 2500 850 972 1233 3600 1057 315 1034 GM Chrysler Hyundai/Kia United States Toyota Ford/Lincoln Canada Nissan Volkswagen (2016) 10000 8000 Total Canada* 6324 4000 2000 Honda and Other (2017) 0 2013 2014 2015 2016 E 2017 E *Rooftops not part of a multi-OEM dealer group (e. g. Autonation, etc. ) Industry leaders rely on acquisitions for growth 10+ privately-held DMS providers acquired since 2014 Universal Computer Systems acquires Reynolds & Reynolds Dealertrack Systems acquires Arkona Inc. Dealertrack Systems acquires Incadea Cox Automotive acquires Dealertrack Systems 2007 2014 2015 2006 • $2. 8 billion • 2. 9 x EV/Recurring Rev. • 18. 1 x EV/LTM EBITDA Executive Summary • $122 million • 3. 4 x EV/Recurring Rev. • 22 x EV/LTM EBITDA • $58. 9 million • 7. 5 x EV/Recurring Rev. • 98. 2 x EV/LTM EBITDA Company Industry Outlook 7 Investment Thesis Valuation • $3. 7 billion • 9. 4 x EV/Recurring Rev. • 3. 75 x EV/LTM Rev. Risks

Financial Metrics Gross Margin EBITDA Margin 65% 30% 60% 25% 55% 20% 50% 15% 45% 10% 40% 5% 35% 2011 2012 QIS 2013 CDK 30% 2015 2014 TRAK 2011 2012 2013 QIS INCA Return on Equity CDK TRAK 0% 2015 2014 INCA FCF Yield 15% 20% 15% 2011 2012 QIS Executive Summary 2013 CDK TRAK Company 5% 10% 0% 5% -5% 0% -10% -5% 2015 2014 2011 QIS INCA Industry Outlook 2012 8 Investment Thesis 2013 CDK Valuation TRAK -15% 2015 2014 INCA Risks

Investment Thesis Tricor Automotive Group Dealertrack • December 2014 – Dealertrack announces purchase of German DMS provider Incadea • December 2015 – Tricor instigates private placement of 8. 9 mm shares at $0. 35/share • January 2015 – Dealertrack announces they are withdrawing from Canadian market • Tricor purchases over 50% of the placement and their President joins Quorum’s board • Implementation problems were having a disproportionate impact on their reputation • Tremendous financial incentive for Tricor to switch all 170+ of their dealerships to Quorum • Dealertrack recommended competitor, Serti, as an alternative • Implementation will begin late 2016 due to capacity constraints • Support for 130 dealerships ending December 31, 2016 – Quorum believes they can get 3545 of these Projected Total Rooftops 400 350 300 250 200 150 100 Tricor Dealertrack Organic 50 0 2014 Executive Summary 2015 Company 2016 E Industry Outlook 9 Investment Thesis 2017 E Valuation Risks

Investment Thesis Lifetime value with no rooftop growth Signs nobody is paying attention Revenue per rooftop • Low liquidity and nano-cap classification prevent many people from investing… Month Quarter Year $2, 083 $6, 250 $25, 000 • Institutional investors = 1 (Voss Capital) 35% • Analysts covering Quorum = 0 EBIT $8, 750 Tax Rate 27. 5% • Corner of Berkshire and Fairfax/Value Investor Club write-ups = 1 (by Voss Capital) AT Profit $6, 344 Maintenance Margin Discount Rate 12% • Reddit/Sum Zero/Seeking Alpha write-ups = 0 Churn 2. 5% • Seeking Alpha members with QIS in their portfolio = 23 (compared to 1, 634 for CDK and 994 for Dealertrack) • …And management isn’t helping • Conference calls = 0 • Investor presentations/conferences = 0 • Public filings disclosing Tricor’s stake = 0 Lifetime Value $43, 750 # of Rooftops 316 Base Value $ 13, 825, 000 Net Cash $4, 791, 231 Implied Value $ 18, 616, 231 Current Market Cap $21, 544, 444 Downside Executive Summary -13. 6% Company Industry Outlook 10 Investment Thesis Valuation Risks

Valuation II: Discounted Cash Flow Analysis Revenue ($mm) Revenue Growth Assumptions 16 14 12 10 8 6 4 2 0 14% -3% 2016 2017 Support 4% 4% 4% 2018 2019 2020 Support Plus New Implementation DCF Inputs Beta (5 yr) Sensitivity Tables Rf 0. 22 EV/EBITDA Exit Multiple EV/Recurring Revenue 1. 75% Exit Multiple EMRP 5. 12% PV Enterprise Value 13 x 3 x E/Value 99% Net Cash $23. 7 mm $4. 79 mm D/Value Illiquidity Premium 1% $28. 5 mm WACC Equity Value 9. 12% Shares Outstanding Target Price (50% of 12% both exit multiples) Executive Summary Company WACC 51. 3 mm WACC $0. 58 Industry Outlook 11 $0. 57 10% 11% 12% 13% 14% $0. 60 10% 11% 12% 13% 14% Investment Thesis EV/EBITDA Exit Multiple 11 x 12 x 13 x 0. 57 0. 60 0. 62 0. 54 0. 57 0. 59 0. 52 0. 54 0. 57 0. 50 0. 52 0. 54 0. 47 0. 50 0. 52 14 x 0. 65 0. 62 0. 59 0. 56 0. 54 15 x 0. 68 0. 64 0. 61 0. 58 0. 56 EV/Recurring Revenue Exit Multiple 2 x 2. 5 x 3 x 3. 5 x 0. 52 0. 58 0. 65 0. 71 0. 50 0. 56 0. 62 0. 68 0. 49 0. 55 0. 60 0. 66 0. 47 0. 53 0. 58 0. 64 0. 46 0. 51 0. 56 0. 61 4 x 0. 78 0. 75 0. 72 0. 69 0. 66 Valuation Risks

Risks Mitigated by… Risk 1. Customer concentration – 59% of rooftops are GM dealerships 1. Quorum continues to make significant investments in R+D to expand XSELLERATOR’s OEM compatibility 2. GM removes Quorum from DTAP program 2. Reynolds and Reynolds retained ~90% of their dealerships after GM severed ties in 2008 3. Cyclical downturn – Vehicle sales fall from their current peak 3. Quorum only lost 4 rooftops in 2009, a “black swan” year for the company 4. Technological disruption – Innovation is overdue in the DMS software industry 4. High switching costs create sticky relationships and make dealerships resistant to change 5. Management execution – Successful Dealertrack/Tricor rooftop implementation is critical to Quorum’s future 5. Management has acknowledged this and intends to space out rooftop growth over the next few years (+15%, +25%, +30%, etc. ) 6. Liquidity – Less than $5, 000 worth of shares are traded per day 6. Liquidity premium applied to WACC. Illiquidity also incentivizes management to pursue a private acquisition 7. Short-term contracts – Contract can be terminated by a dealership at the end of every month 7. Quorum’s churn rate was returning to pre-crisis levels when they stopped reporting total rooftops and new installations at the end of 2012 Executive Summary Company Industry Outlook 12 Investment Thesis Valuation Risks

Appendices Projected Balance Sheet Projected Statement of Cash Flows Projected Income Statement Taxes Paid Investment Tax Credits Net Operating Losses Depreciation Schedules Revenue Projections – Rooftops Revenue Projections – Segments Gross Margin Projections Total Addressable Market Projections Operating Expense and Debt Repayment XSELLERATOR Functionality Historical Churn Rate Historical Shares Outstanding XSELLERATOR Partners QIS Hiring 2016 Historical GM Rooftop Concentration December 2015 Private Placement 13

Financial Statement Projections – Balance Sheet 14

Financial Statement Projections – Cash Flow Statement 15

Financial Statement Projections – Income Statement 16

Financial Statement Projections – Taxes 17

Financial Statement Projections – Net Operating Losses 18

Financial Statement Projections – Depreciation (1/3) 19

Financial Statement Projections – Depreciation (2/3) 20

Financial Statement Projections – Depreciation (3/3) 21

Revenue Projections – Rooftops 22

Revenue Projections – Segments 23

Gross Margin Projections – Segments 24

Total Addressable Market Projections 25

Operating Expense and Debt Repayment Assumptions 26

XSELLERATOR Functionality Sales Workflow 1. Showroom 2. Vehicle Search 3. Desking (e. g. write-up of quotes and scenario analysis) 4. F&I 5. Back Office 6. CRM Service Workflow 1. CRM 2. Service Appointment Management 3. Electronic Work Orders 4. Service Quoting 5. Work Order Closing 6. CRM Parts Workflow 1. CRM 2. Inventory Search 3. Price and Quoting 4. Inventory Processing 5. Inventory Management Accounting Workflow 1. Vehicle Inventory 2. Vehicle Sales 3. Service 4. Part Sales 5. Parts Inventory 27

Historical Churn Rate Rooftops lost/average dealerships per year Average 2002 -2012: 2. 0% Management refused to disclose 2013 -2015 total installation numbers 14% 12% 10% 8% 6% 4% 2% 2002 2003 2004 2005 2006 2007 28 2009 2010 2011 0% 2012

Historical Shares Outstanding • December 2015 private placement initiated by Tricor Automotive Group • CFO does not anticipate any further shares issuances 60, 000 50, 000 40, 000 30, 000 20, 000 10, 000 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 0 29

XSELLERATOR Partners (1/2) 30

XSELLERATOR Partners (2/2) 31

December 2015 Private Placement 7. 7% 17. 3% Directors/Officers Tricor (According to Voss Capital) 25. 0% Dealerships 50. 0% Voss Capital and Others 32

QIS has rapidly increased their hiring in 2016 Implies ~110 total employees as of March 2016 33

Historical GM Rooftop Concentration 100% 90% 75% 75% 80% 72% 70% 60% 59% 50% 40% 30% 20% 10% 2009 2010 2011 2012 34 2013 2014 0% 2015