Page 1

Overview NorAm International Partners, Inc. (NorAm), and Elovations Services Group (ESG) are two different companies with similar ownership that operate separately as 3PL service entities. NorAm was founded in 2006, and evolved from being a liquidator and b-to-c seller of returns and secondary market products to providing specialty logistics services to the top online retailer in the world. NorAm provides services to several companies, managing trade-in programs, reverse logistics, and product grading/refurbishing services. NorAm handles over 11M annually of media products (books, DVD, VG and CD), and consumer electronics processing from facilities in Hebron, KY, Richmond VA, and Las Vegas NV. NorAm’s primary customers are (5 separate sub-customers at Amazon), and Valore Books. NorAm recently signed 18 month contract (unheard of as an Amazon 3PL). Amazon has warrants 22% warrant options in NorAm. ESG was founded in 2012, and was created specifically to provide a dedicated global logistics services division for new launched Global Shipping Program started by Ebay. Today NorAm processes from 15-55,000 units daily (depending on peak variance) for GSP from single Erlanger, KY facility. EGS’s single customer is eBay (billed through Pitney Bowes) CONFIDENTIAL for

Opportunity for review ESG and NorAm have both been funded and built from current ownership capital investment, and cash-flows. In spite of a nearly complete turnaround and restructuring of NorAm from consumer sales to B-2-B 3PL services, and planned scale at ESG taking nearly 2 years longer then predicted by Ebay, both businesses today demonstrate remarkably stable fundamentals. Current ownership believes strategic partnerships will be key to leverage growth opportunities in the 3PL services space, and feel consolidation will continue especially as market capital is looking for performing companies. As a result, we are looking for a strategic or financial partner with expertise or experience in the retail logistics space. Both companies are debt free, have fully paid for performing assets, cash flow positive, and did combined EBITDA of 4.5M in 2016. While each company has separate business risks and opportunities, current shareholders are considering a transaction involving both entities combined or individually, depending on what makes sense for maximum benefit of all parties. CONFIDENTIAL for

ESG Summary ESG manages the physical outbound operations for eBay’s GSP. In short, all parcels from eBay sellers using GSP flow through the ESG facility for verification, inspection, and sort to outbound lanes: •ESG operates as a contractor Pitney Bowes (PB), and is contractually noted as the service provider by eBay, with certain rights dictated by eBay that NorAm may not be replaced without eBay approval. •Processing units in 2016 represented 7,000,000 units, billed by ESG weekly with net 15 day payment terms at a fixed cost. •ESG provides Dangerous Goods added services on top of per unit fee. •ESG owns all assets inside the walls of the facility, and manages all staffing. •PB has a dedicated IAC staging area that is exclusive to PB, and staff by PB •ESG has met 24 hour SLA performance over 99.5% of the time (on a parcel basis) for the duration of the contract, and has never failed in service that resulted in penalties or charges from eBay to PB CONFIDENTIAL for

ESG Performance ESG’s initial business plan included a plan for over $5-$6.0M of required CAPex to handle the expected program ramp (which by Jan 2016 was expected to be 70,000 parcels a day – it is now 18-20k). Due to a variety of challenges in driving GSP volume to the hub, international market condition changes, currency strength, and PayPal spinoff that delayed platform changes for 8 months, eBay’s projections for the first 24 months were 70% off target. For the first year after program launch, ESG attempted a joint venture program partnership with PB, affording them share of revenue for access to CAPex. Due to challenges in overhead being allocated to operations fully funded by NorAm, but not viewed by NorAm as being costs that should apply to the hub, that partnership was ended in January 2014. In spite of volume plan shortfall, and a reduction of the fee charged for services from originally $2.65 to $2.11 per unit, ESG delivered strong operating profits: 2014: 2015: 2016: 2017:

$2.8M EBITDA $2.9M EBITDA $2.5M EBITDA (decline in parcel growth due to currency pressure) $2.5M EBITDA (projected flat) CONFIDENTIAL for

ESG SWOT (Strengths/Weaknesses) STRENGTHS • Strong and trusted relationship with eBay, transparency on economics. • Strong hub leadership and proven performance. • Technology development capabilities to deliver better hub processing tool if allowed. • No debt, strong forward financial growth, Cash on hand • Stable and steady volume flow.


WEAKNESSES • Perceived as small entity when dealing with PB on business terms. • A partner with broader automation and 3PL logistics experience could help increase bottom line performance even more. • Footprint current only in KY, and as program grows will need to establish broader US footprint with simply incurring larger CAPex with no volume upside. • Heavy customer concentration with single hub customer (eBay) • No direct billing/contract with eBay, having to serve via PB (although original tax risks that blocked ESG from being directed may have changed so this could be opportunity as well.

ESG SWOT (Opportunities/Threats) OPPORTUNITIES • Incredible financial performance despite negative currency valuation impacting exports. • Hub largely manual, with limited automation. As volume grows, automation could significantly increase net income with fast ROI • Operating at 40% of Hub efficient capacity. Max capacity with no flex staging is 55-60k units a day, with flex staging additional space 75k. Current daily average 20k units • Have strong technology capabilities that could build a more efficient and automated HUB tool. CONFIDENTIAL for

THREATS • PB does not benefit from stronger ESG, as simplification of hub tools, transparency in economics, and efficiency all expose the high cost of data services PB provides. • Current GSP program is 95% open box, which limits ability for automation and efficiency; however, this is also an opportunity as more closed box volume has significant bottom line impact. • PB relationships with DHL, Rider and others through BorderFree are extensive, so there is an underlying effort always at play to utilize those companies.

Why timing good for SFE & ESG ESG ownership feels financials have not only normalized with over 12 months of stable growth, but, is seeing growth in eBay GSP team and focus beginning to surface positive signs again of expansion. The feeling is being aligned with the right partner who knows all the stakeholders interests would allow ESG to be stronger in contract negotiations with PB, build deeper eBay relationships, and help take the program to a completely new level with movement into technology services. ESG has a foundation business that not only brings immediate and demonstrated accretive earnings to any deal, but does so with the need for very little if any CAPex. Any needs for improvements will only add to bottom line performance. As important, a partner such as SF Express is well liked and respected by eBay, and would receive eBay’s blessing to be aligned with ESG. In fact, it would give we believe eBay more of an upper hand in dealing with challenging PB culture and practices.


NorAm Summary NorAm today is best described as a specialized 3PL service entity. With roots in ecommerce sales of secondary sourced product, NorAm in 2011 was Amazon’s largest 3rd party merchant, selling at peak over 300,000 units a month ($50M in annual top line) of primarily media and consumer products. NorAm saw shifts in supply as Amazon moved to direct selling of returns via Warehouse Deals, and increased fees of $1.35 per unit sold on Amazon in 2012 forced the company to shift revenue models quickly. •NorAm runs all the Amazon trade-in platform processing for Consumer Electronics, Video Games and Consoles, and media products (about 7000 units daily). This include all receive, grading, refurbishment, and pre for resale (by Amazon Wareshouse Deals and other buying merchants). •Amazon runs all the reverse logistics, grading, and outbound return to FCs for Amazon’s successful textbook rental progam. During the Dec 2015 peak, NorAm handled 3.1M inbound units in 23 days, a 50% increase from Dec 2014 with same facility locations and 9 days shorter returns cycle. NorAm will process 6.0M units over next 12 months, primarily during May/Dec semester break cycles.


NorAm Summary (Continued) •

• •

As on of the only companies outside of Amazon’s closely controlled Lab126 Kindle facility to process and grade Kindles, NorAm provides full testing, recycling, and processing for Kindles upgrade trade-in program. NorAm’s facilities run world class refurbishing and data wipe services, and recently was asked to provide electronics grading of Amazon customer returns. NorAm’s Hebron, KY facility has the following certifications: – – – –

R2:2013 Electronics Recycling Standard ISO 14001:2004 Environmental Management System OHSAS 18001:2007 Health and Safety Management ISO 9001:2008 Quality Management System

NorAm processes 1.0M units annual of primarily textbook rental and buybacks for Valore Books, one of the country’s largest and fastest growing student textbooks companies. NorAm is in discussions to handle multi-channel fulfillment for large Amazon FBA sellers, and is launching a Oct 2017 4-month pilot where NorAm will be an external FC handling 100,000 units a month. If successful, plan would be to scale to 250,000 units a month of 3PL fulfillment for Amazon CONFIDENTIAL for

NorAm Performance At its peak in 2011, NorAm had EBITDA of over $5.0M. The dramatic shift in selling on Amazon costs, and the shift of Amazon to increase Warehouse Deals inventory by 3X, had the double effect of cutting nearly $400,000 of profit monthly from the business, and decreasing the quality of inventory. Recognizing this trend, NorAm began a dramatic transformation, moving from over 250 employees down to 130, and focussing on just services. It was in 2012/13 that we launched handling TB rentals, which started out with 800,000 unit per year volume (now its 7.5+M annually in same footbprint). The company is poised to have a fantastic year with just current status quo volume. Small upticks or new opportunities in the pipeline could be significant. The company has no debt, $3.0M of assets on balance sheet, and very competitive lease obligations with minimal risk of exposure based on current customers. 2012-2014: -($7.9)M EBITDA 2015: $400k EBITDA 2016: $2.0M EBITDA 2017: $2.3M EBITDA (projected) CONFIDENTIAL for

NORAM SWOT (Strengths/Weaknesses) STRENGTHS •Considered one of the most adaptable and flexible Amazon 3PLs. Repeatedly called upon for new opportunities. •Have built flexible facility and rapidly scalable workforce model for high seasonal variance. •Lean overhead structure, no marketing, sales, and minimal admin. •Proprietary and world class asset tracking software Optix™, used by Amazon over their own tools •Capacity to handle 40% volume increase with minimal CAPex or lease expansion. •Over 10 years experience handling CE and consumer goods grading and processing of trade-in & returns. CONFIDENTIAL for

WEAKNESSES • Heavy concentration and reliance on one customer. • Contracts with all providers are short term (normal with Amazon, Ebay, and retailers) so long term facility planning difficult. • Expansion for Amazon TB Rental requires more locations, but cannot get long term contracts. Has worked so far, but risky to take on leases. • Uneven volume of business to utilize grading and repair capacity.

NorAm SWOT (Opportunities/Threats) OPPORTUNITIES •Very large CE retail opportunities in the pipeline that could double current CE processing and refurbished volume. •Partnering with company that has multiple locations could provide huge value added to Amazon TB rental with need for off peak locations that could fill excess capacity without leases. Amazon TB rental could be a long term account. •No dead weight executive overhead. Very small Sr. leadership team, and flat structure where all mangers can demonstrate strong value-add revenue impact. Ideal for acquisition. •Tremendous capacity ready for deployment. CONFIDENTIAL for

THREATS •Changes in CE space leading to fewer wireless devices repairable by companies other then Carrier or Manufacturer extensions. •Ingram Micro, Moduslink, PCS Wireless, others all vying for the high profile Amazon CE trade-in processing. Have to be constantly enhancing services to stave off threats. •Move to digital will at some point impact book logistics, but Amazon also thinks it’s a long ways out, so time to diversify as needed.

Why timing good for SFE & NorAm NorAm provides high value, high fee certified grading/refurbishment programs that can be easily replicated regionally, allowing SF Express to essentially provide a huge value added in the returns space, trade-in programs, and other complicated specialty 3PL services via a NorAm extension.

NorAm’s small leadership overhead would allow it to fold nicely into SFE structure with little disruption.


Leadership Culture / Owners Michael DuGally and Arthur Maxwell combined represent majority ownership in both ESG (81%) and NorAm (63%), and have worked together for nearly 20 years, generating over 2.0B in revenue. Mike’s focus on core business relationships and creative technology development, and Arthur’s extensive background in finance and capital structure investments provide a operating relationship that have allowed these two business entities to thrive even in very challenging and changing commerce conditions. Both companies will require continuous innovation and change to continue growth. This will come from being aligned, we believe, with the right companies who embrace the adaptability and entrepreneurship needed to respond to rapidly shifting market conditions. Michael DuGally would consider any scenario to stay as or more engaged in both enterprises depending on the wants of prospective buyers. CONFIDENTIAL for

Sf express overviewesg noram  
Sf express overviewesg noram