Peter Rabover, CFA

Portfolio Manager
Artko Capital LP

April 24th, 2016

Dear Partner,

For the 3rd fiscal and 1st calendar quarter of 2016, a partnership interest in Artko Capital LP returned +2.6%
net of fees. At the same time, an investment in the most comparable market index alternatives -Vanguard
Russell 2000 ETF, iShares Microcap ETF, and the Vanguard S&P 500 Index ETF--lost 1.5%, -5.4%, and gained
+1.4%, respectively. Year-to-date, for the last nine months of our fiscal 2016, an interest in Artko Capital
LP returned +6.8% net of fees while investments in the most comparable aforementioned market index
alternatives were down -10.2%, -15.3%, and up +1.5%, respectively. Our gross, monthly and cumulative
results, as well as those for the comparable indexes, are available in the table below. We are encouraged
by our fully invested portfolio’s capacity to continue to withstand and perform positively in the volatile
small- and micro-cap markets and are confident that each one of our investments will continue to
outperform in the long term.

On The Opportunities In Warrants

While a vast majority of our portfolio is invested in high quality, small capitalization companies with low
probabilities of capital loss, the Enhanced Value portion of the portfolio tends to concentrate on smaller
positions in securities that may have higher downside potential but provide very high risk-reward
opportunities. Additionally, since we try to provide you with a product that is complimentary, instead of
competitive with index alternatives, most of these positions tend to be in low liquidity, unindexable
investments. As such, one of our favorite targets tends to be warrant securities. Since we’ve added our
third warrant position to the portfolio in the last quarter, which we describe later in the letter, we thought
we’d talk about why we like them so much.

What are warrant securities? In essence, they are stock options that allow you to buy the stock of a
company at a predetermined price within a certain time frame. In that sense, they are no different from
a stock option that you can buy on any exchange. They are a financing instrument and are an integral part
of capital structures of new companies or those in special turnaround situations. They are no different
than the stock options issued to employees of most companies in that they are an incentive for providers
of two of the most important economic factors of production: labor and capital. However, there are
certain differences in warrants that make them more attractive than exchange traded options:

● They tend to be long dated, with expiration dates sometimes lasting up to 10 years (as in the case of
our AIG warrants) versus exchange traded options whose end dates tend to be measured in months
not years.

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● They often come with provisions to protect the warrant holder, such as anti-dilution provisions and
contingent value rights (CVR), which makes them more valuable. For example, on the same AIG
warrants, over the 6 months that we’ve held them, the CVR provision increased the number of
underlying stocks on each warrant from 1.00 to 1.006, or 0.60%. Not a large number, but when
considering the length of time until the warrant expiration date and the leverage inherent in each one
and it becomes incredibly meaningful over time.

So why do we like them so much?

 Traditional option pricing models overemphasize historical volatility as value factor and do not
consider business fundamentals, which might work for shorter-term options, but fundamentals far
outweigh stock price volatility in the longer term. The over-reliance on historical volatility inputs in
similar financial models in the 2007-2008 period was evident when the fundamentals of the rapidly
deteriorating housing market were more than the under-reserved balance sheets of financial
institutions could handle. We tend to value our warrant opportunities on a risk-reward basis, of what
the underlying company’s true value is and the probability of whether we will be able to realize that
value before the expiration date. We like to think of this as a “fundamental arbitrage,” where we’re
buying an instrument priced on a backward looking stock volatility number while the true price lies in
the fundamentals of the underlying company. We understand that our view on this is contrarian to
the established dogma of the option pricing and trading markets, but our experience has shown that
occasional pockets of mispriced opportunities exist, and we’re looking forward to taking advantage of
them.

 We recognize that we have very little control over what happens with a stock of a company in the
short term, unless it’s a rare, event based, arbitrage situation, but strongly believe, in the words of
Benjamin Graham, that in the long term the stock market turns from a voting machine to a weighing
machine. As such, the long nature of warrants makes them very attractive to us given our preference
for extended holding periods.

 From a basic view, warrants are a simple and elegant way to magnify the leverage on our investment
ideas. They offer a way to participate in great investments at a fraction of the price and to magnify
the potential returns (and potential losses) many fold.

 Warrants are usually small issue securities that are traded very thinly and are generally off the radar
of most institutional investors. Our size and intent to stay as a small fund allow us to make these
positions a unique part of our portfolio while staying patient and buying them opportunistically during
periods of volatility. The volume of our KODK warrants is usually in the hundreds per day and we’ve
opportunistically added to our position when the price has dropped close to $2.00 on a regular basis.

As a final note, we recognize that we are not infallible with respect to occasionally being wrong, and these
are inherently risky securities, with at least some potential of a 100% loss. Since most of the time we look
to buy warrants below the exercise price of the underlying stock, our intent is to make sure our annual
losses on each position, through time decay of the option price, don’t exceed 1-1.5% of the overall
portfolio capital. We expect these positions to usually be in the 2% to 4% range of the portfolio with
appropriate size adjustments if their size gets over 10% of the overall portfolio, and we usually expect to
get least a 4x to 5x return on these investments.

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Portfolio Updates

Our portfolio companies had a solid quarter of results, and we’d like to update you on key developments
on a few of the companies that have happened over the past few months:

● USA Technologies – The company continued to fire on all cylinders this quarter with signing an
additional 20,000 vending machine connections to increase its base to 369,000 or a 28% year on year
base growth. The continued strong growth toward management’s goal of over 500,000 connections
by 2017 is a welcome sight. As importantly, it was another quarter of positive free cash flow showing
that the company is at its profitability inflection point and a significant portion of the company’s future
growth in connections and transaction revenue should be expected to fall to the bottom line.
Additionally, in January 2016, the company acquired the assets of VendScreen and subsequently
released their touch screen technology to the market in April 2016. The new technology will allow the
company to generate additional advertising revenue from the screens while providing consumers with
nutritional and promotional/loyalty information for their purchases. Despite the stock surging 50%
since our initial entry, we’re still very positive on the story and expect another 200% upside from
today’s levels.

● Kodak $14.93 September 2018 Warrants – Kodak continued to progress on our thesis of unlocking the
value of its many segments. On March 15, 2016, the company announced that it was in the process
of selling its PROSPER inkjet commercial printing system to a strategic buyer. While we are sad to see
the company part with such a great asset, Kodak’s management is right to sell it to someone with a
bigger sales force and ability to provide customer financing for the $3 million piece of equipment.
While Kodak is a $12.00 stock, we expect the company to receive over $5.00 per share (or over $200
million) for the sale of this business. Just as importantly, post-bankruptcy Kodak was saddled with
$670 million in very high cost debt that is costing it $64 million a year or $1.60 per share in interest
expenses. While Kodak has $550 million in cash on its balance sheet, currently only $300 million is
available in the United States. However, with the upcoming sale of PROSPER, the company will finally
pay down most of this unnecessary debt and generate an additional $1.00-$1.60 of annual Free Cash
Flow to the shareholders. Since this is a volatile warrant position, we’ve taken advantage of the
occasional price dips to add an additional 1% to our stake and to lower our cost basis throughout the
quarter.

● Viad Corp – One of our favorite, and largest, at 10% of the portfolio, holdings, Viad Corp, continues to
perform strongly. On its February 2016 earnings call, the company gave guidance for 2016 EBITDA
that would imply 25% growth for the year. What is more remarkable is that despite 2015 being an
“off-show” year, where it has less bi-annual shows than even numbered years, it still managed to grow
25%. The company’s 2016 Free Cash Flow is expected to grow in strong double digits as well. While
we’ve enjoyed modest, single-digit gains in our position, it continues to be an incredibly cheap
company trading at less than 5.5x 2016 EBITDA and at 12% Free Cash Flow yield. Additionally, during
the quarter the company made a $45-million, or 10% of the entire market cap, acquisition of an Alaska
travel and resort company, including over 400 rooms and cabins in Alaska national parks. This
acquisition’s importance is understated in the company’s valuation is it significantly increases the size
of its Travel and Recreation (T&R) business, which pushes closer the eventual split of the two
businesses, T&R and Event Marketing. We’re very impressed with the combined results, and we
continue to see a 200% upside via organic growth and an eventual split of the two businesses.

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● CSW Industrials – We were less impressed with the results of CSWI, as it was our biggest
underperformer of the quarter, down close to 20% to its original spin off price. While the company
has been successful in building itself through decades of small tuck-in acquisitions of high-quality
specialty chemical and industrial businesses, in June 2015, it made its biggest acquisition to date,
Strathmore, at close to $70 million dollars. While the deal is still a good one, the company
underestimated the end market exposure of Strathmore products to the energy market, which,
despite representing only 15% of the company revenues, declined over 50% on the quarter. The rest
of CSWI reported organic revenue growth of close to 5%, but the larger energy market exposure was
a bigger surprise to the market, as well as ourselves. Digging further into the troubles with integrating
Strathmore was CSWI’s decision to take the option of a lower acquisition price in return for keeping
Strathmore’s somewhat controlling founder at the company for an extra year. This resulted in a
culture clash and a slower than expected achievement of expected synergies. We are still bullish on
the name and think today’s price of 11x quality earnings and 8.5% forward Free Cash Flow yield
represents a good value but are closely monitoring this position.

● AIG $45.00 January 2021 Warrants (AIG-WT) – Under pressure from activist investor Carl Icahn, the
company held a conference call with investors in January 2016 on its updated strategy. Among the
key updates was a commitment to a $25 billion return of capital to investors, or 35% of capital, over
the next 20 months. Buying back over one-third of the shares at .7x book value should increase the
book value per share by 20 to 25%. The company also intends to reach a 9-10% operating ROE and
reduce its loss ratio by 6 points, which we would view as a positive if it happened. Given the recent
history of overpromising and under delivering by management, however, we are skeptical of this
guidance in the near term. We are still of the opinion that AIG would be better off split into two parts,
P&C and Life, however, we feel that the current capital distribution plan provides a close second place
option. Management is aware that if it does not achieve these targets then the only option is to split
up. Given the recent federal court decision rejecting MetLife’s “systemically important” designation,
albeit on administrative grounds, we believe this bolsters the case long term that as two smaller
entities AIG should not be encumbered by its own SIFI designation and the costs that come with it.
We view our target 2020 book value per share of $130.00 as still very achievable and at .7x to 1.0x
times our projected book value the current warrant opportunity represents a 30% to 45% IRR.

Enhanced Value Portfolio Additions

“I have spent less than one second of my life thinking about Del Taco” – Top ranked sell side analyst
covering restaurants to us

● TACO $11.50 June 2020 Warrants (TACOW) – Tacos tacos tacos! This is the theme for our new addition
for the quarter and in loosening our belt by doing due diligence visiting a dozen Del Taco locations.
Del Taco is a great operator of a popular Mexican food franchise chain that operates over 500
restaurants in 16 states. They have an excellent management team led by Paul Murphy, who as the
CEO of Einstein Noah Bagels facilitated a very lucrative sale of the company to a private investment
group. The company has a nice runway of double-digit growth in expanding the Del Taco concept into
Eastern and Midwest states. We were particularly impressed by the variety and quality of its industry
leading value menu, which management has made part of its core strategy instead of a seasonal
promotion like its competitors. In the meantime, TACO is trading below 5.5x double digit growing
EBITDA and close to 15% Free Cash Flow yield with low debt. At the same time, the Quick Service

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 Restaurant (QSR) industry is trading at 10-12x EV/EBITDA multiples. Even Del Tacos’ closest, and in
our Mexican food connoisseur opinion, worse competitor El Pollo Loco, is trading at 10x forward
EV/EBITDA.

Del Taco is a new public company, with a limited established trading history, and little Wall Street
coverage. It was brought to market by a Special Purpose Acquisition Company (SPAC) less than a year
ago and as you can see by the quote above is off the radar of most Wall Street analysts. We anticipate
that as the company gets a longer trading and financials history the market will begin to appreciate
the quality franchise and it should revert closer to its competitors, to an $18-20 price range. Since
SPACs come to market with warrants, to sweeten the deal for potential investors, we were able to get
the 2020 $11.50 strike price warrants at below $2.00 for a 3% position in the portfolio. We are mindful
of the competitive threats and wage risks of this investment but given the length of time until warrant
expiration, the potential for significant store expansion, same store sales growth and the cheap price
we were able to get for the warrants we believe the risk reward ratio of this investment is well worth
it.

Portfolio Performance

We had an excellent quarter, with positive returns, continuing to outperform our benchmark indexes. Out
of our 14 fully invested positions, the negative double-digit returns by CSW Industrials, Full House Resorts,
and AIG Warrants during the quarter detracted from an overall positive performance by the rest of the
portfolio. Our quarterly performance was helped by a positive 8% move in US Geothermal, 12% move in
MMA Capital Management, 20% moves in Graham Corporation and Del Taco Warrants, and a 40% gain in
USA Technologies while the rest of the portfolio performed in line with the markets. For the 9 months,
our returns were offset by a 10% loss in AIG Warrants while 10% gains in Babcock Wilcox and National
Research Corporation, 20% gain in Del Taco Warrants, 30% gains in US Geothermal and MMA Capital
Management, and a 50% gain in USA Technologies helped our portfolio to perform strongly.

Market Outlook and Commentary

The first quarter of 2016 witnessed a period of significant market volatility, especially in the small-cap
markets, with Russell 2000 and Russell Microcap dropping by 16% and 18% by mid-February due to
continued uncertainty with oil prices, Fed interest rate policy, and potential for a U.S. recession. By the
end of the first quarter, with oil prices recovering close to a more sustainable $40.00-barrel price as fears
of a supply glut receded, the broader market recovered to its December 2015 levels while small-cap
markets continued to underperform in single-digit percentage terms. Strong Institute for Supply
Management (ISM) March factory production and new factory orders numbers, and a welcome
weakening of the U.S, dollar on stronger global growth forecasts, reduced fears of a potential recession
in the near future. We continue to see an economy poised for 2% run rate growth in the next few years
with a slowed pace of interest rate rises. As we are not market prognosticators, and nor should you expect
us to be, we don’t see near term fundamental reasons to be out of the domestic equity markets. We
continue to see pockets of opportunities to buy high quality companies at great prices underpinned by
our expectation of positive domestic and global economic growth and we expect to add more companies
to our portfolio throughout 2016.

Next Fund Opening

Our next fund openings will be May 1s,2016, and June 1, 2016. Please reach out for offering documents
and presentations at info@artkocapital.com or 415.531.2699

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 Legal Disclosure

The Partnership’s performance is based on operations during a period of general market growth and
extraordinary market volatility during part of the period, and is not necessarily indicative of results the
Partnership may achieve in the future. In addition, the results are based on the periods as a whole, but
results for individual months or quarters within each period have been more favorable or less favorable
than the average, as the case may be. The foregoing data have been prepared by the General Partner and
have not been compiled, reviewed or audited by an independent accountant and non-year end results
are subject to adjustment.

The results portrayed are for an investor since inception in the Partnership and the results reflect the
reinvestment of dividends and other earnings and the deduction of costs, the management fees charged
to the Partnership and a pro forma reduction of the General Partner’s special profit allocation, if
applicable. The General Partner believes that the comparison of Partnership performance to any single
market index is inappropriate. The Partnership’s portfolio may contain options and other derivative
securities, fixed income investments, may include short sales of securities and margin trading and is not
as diversified as the indices, shown. The HFR Equity Hedge index is an equal weighted performance index
of certain funds in the Hedge Fund Research, Inc. (HFR) Database that deploy strategies maintaining
positions both long and short in primarily equity and equity derivative securities, including quantitative
and fundamental techniques, specific sectors, and ranging broadly in net exposure, leverage, holding
periods, and concentrations of market capitalizations. The Standard & Poor's 500 Index contains 500
industrial, transportation, utility and financial companies and is generally representative of the large
capitalization US stock market. The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index and is generally representative of the small capitalization U.S. stock market. The Russell
Microcap Index is comprised of the smallest 1,000 securities in the Russell 2000 Index plus the next 1,000
securities (traded on national exchanges). The Russell Microcap is generally representative of the
microcap segment of the U.S. stock market. All of the indices are unmanaged, market weighted and reflect
the reinvestment of dividends. Due to the differences among the Partnership’s portfolio and the
performance of the equity market indices shown above, however, the General Partner cautions potential
investors that no such index is directly comparable to the investment strategy of the Partnership.

While the General Partner believes that to date the Partnership has been managed with an investment
philosophy and methodology similar to that described in the Partnership’s Offering Circular and to that
which will be used to manage the Partnership in the future, future investments will be made under
different economic conditions and in different securities. Further, the performance discussed herein does
not reflect the General Partner’s performance in all different economic cycles. It should not be assumed
that investors will experience returns in the future, if any, comparable to those discussed above. The
information given above is historic and should not be taken as any indication of future performance. It
should not be assumed that recommendations made in the future will be profitable, or will equal, the
performance of the securities discussed in this material. Upon request, the General Partner will provide
to you a list of all the recommendations made by it within the past year.

This document is not intended as and does not constitute an offer to sell any securities to any person or
a solicitation of any person of any offer to purchase any securities. Such an offer or solicitation can only
be made by the confidential Offering Circular of the Partnership. This information omits most of the
information material to a decision whether to invest in the Partnership. No person should rely on any
information in this document, but should rely exclusively on the Offering Circular in considering whether
to invest in the Partnership.

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