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BOSSERT CAPITAL LLC

First Half 2017 Investor Letter

Dear Investors:

Bossert Capital began accepting investors in February of this year and I am humbled to report 9
families have entrusted me to manage their capital. Partnering with like-minded and long-term
oriented investors is a big advantage. I am very pleased to have a group of suitable partners like
you and it makes it fun to go to work every day. I take the responsibility of managing your hard
earned capital very seriously and I hope the partnership between us lasts a lifetime. My
objective is simple, to compound your capital (and my own) at the highest rate I can over the
long-term. I’m honored by your trust and confidence in me.

My time is focused on finding businesses where the market price significantly understates the
intrinsic value of the underlying business. At period end, we have 9 investments in the portfolio
and approximately 50% cash. I am excited about the businesses we own and I believe they will
all be worth considerably more in 3-5 years. I am eager to put all of our cash to work but I will
only do so when we are buying at a large discount to intrinsic value combined with a healthy
margin of safety.

Assets that trade at a significant discount to their intrinsic value are rare. Finding these bargains
is tough and it requires turning over many opportunities in search of overlooked value. In some
periods, bargains are plentiful and in other periods they are few and far between. In any asset
class, there will be assets that occasionally become mispriced. These opportunities will be rare
and they will typically disappear quickly. I am confident that our future in finding mispriced
assets remains bright.

I read hundreds of annual reports every year and patiently wait for an opportunity that fits my
criteria. I am looking for businesses that are trading at a substantial discount to a conservative
calculation of intrinsic value. I also demand a very low probability that the intrinsic value could
become impaired. I define the discount to intrinsic value as our margin of safety – if I end up
being wrong or the vicissitudes of the market cycle align against us, we will have ample
protection. When I find a business that I understand, a market price at a large discount to
intrinsic value, combined with a large margin of safety; I bet with conviction. Once I have
purchased a business that fits this criteria, I am willing to wait patiently for the market to agree
even if the stock price declines in the short run. I have found a 3-5 year holding period to be
typical to realize that value.

One investment was sold at a loss during the period

I made a mistake during the period. During the first half, I purchased shares in a company I
have been following for over 6 years, Infusystem. Infusystem meets my criteria for upside
potential but I quickly concluded that it did not fit my criteria for a strong margin of safety. I
admitted my mistake and unfortunately we lost money on the investment.
A brief overview of some of our investments

I am excited about the group of businesses we own. Our portfolio of businesses collectively
trade at a substantial discount to my assessment of their intrinsic value. As a result, I am very
bullish on our future results. Below you will find a brief summary of some of our investments:

Seritage Growth Properties

Seritage is a REIT (real estate investment trust) that spun-off from Sears Holdings in 2015.
They own 266 properties across the United States, half of which are mall assets and the other
half are freestanding locations. As Sears continues to decline, Seritage is rapidly redeveloping
space formally leased to Sears and leasing those properties to third parties at a rate per square
foot that is, on average, 4.3 times what they received from Sears. Every dollar invested into
redeveloping this real estate creates tremendous value for shareholders. Seritage is in the
process of redeveloping 3.25 million square feet at a cost of $457.6 million ($141 per square
foot). The incremental return on this investment is $55.3 million annually or a 12% return on
investment. In today's environment, Seritage is creating $2 in intrinsic value for every dollar
invested into redeveloping their real estate. Even better, Seritage has a long pipeline of real
estate that has yet to be redeveloped - 31.4 million square feet that is currently leased to Sears
& Kmart. If they maintain these returns across all of this real estate, the value creation will be
tremendous. The market has given us the opportunity to purchase Seritage at a price that gives
no value to this redevelopment opportunity. I expect Seritage will be worth multiples of the
current price in 3-5 years.

Nicholas Financial

Nicholas Financial is a sub-prime auto lender based in Clearwater, Florida. I have followed the
company (and owned it off and on) for over 10 years. I admire their demonstrated ability to
make rational and conservative lending decisions over their history. We purchased Nicholas
Financial at a significant discount to my view of their net asset value which I view as in the
neighborhood of $14/ share (and growing).

Competition in the auto lending space is as fierce as it has ever been. Lenders are willing to
sacrifice sensible lending practices to maintain or grow market share. This looks great in the
short run but it will lead to significant losses for many players in the future. This cycle has played
out many times over history. When competition eventually abates, Nicholas will be able to earn
far more writing loans than it is today. There are two likely outcomes for our investment in
Nicholas, 1) the auto lending cycle turns and the company earns far more in profits as a result
or 2) the company is sold to a larger player with economies of scale. Both of these outcomes
will lead to a positive result for our investment in Nicholas.

New York REIT

New York REIT owns class AAA office properties in New York City and is pursuing a plan of
liquidation that shareholders approved on January 3rd of this year. Over the next year, the
company will be selling all their properties and, after paying off debt, liabilities and satisfying
liquidating expenses. The remainder will be distributed to shareholders. The results to date have
been below my expectations. However, I believe a conservative estimate of net liquidation
proceeds will be greater than the price we acquired our shares.
Company A

Company A is a Brisbane, Australia-based manufacturer and distributor of a few specific types


of equipment for the underground coal mining industry in Australia. This is a high-quality
business with dominant market share, trading at a truly exceptional price. The business has a
number of attributes that attract me: 1) The equipment is mission critical to the coal mining
process and essential to the safety of mine workers. As a result, the Australian government
requires mines to replace the equipment every two years which provides for a steady base of
recurring revenue. 2) An existing customer is very unlikely to switch suppliers and they do not
duel source. The product is low cost (in the $3,000 range) and customers would never risk the
safety of mine workers or a costly mine shutdown simply to save a few hundred dollars on less
safe equipment. 3) This company has a strong reputation for safety and dominant market share
in their niche. 4) This business exhibits strong barriers to entry. It would be very tough for a new
competitor to enter the market. Mines are unlikely to switch suppliers and very few new mines
open every year – it would take a long time to gain a foothold in the market. At the same time a
new entrant would need to establish local production to avoid long lead times. The economics
would never make sense. Even if they overcame these hurdles and got through the extremely
stringent government regulation for these products, a new entrant would have no established
safety record. All of this would need to be overcome for an industry niche that is very small and
less than $100 million in total sales. It’s no surprise there has been a near total absence of
foreign competition.

The large base of existing installed equipment provides for a steady stream of recurring cash
flow year in and year out regardless of whether new coal mines open or existing mines expand.
This is a very high-quality niche business that produces positive free cash flow in all parts of the
commodities cycle with very minimal capital expenditure needs.

The market has given us the opportunity to acquire shares in this wonderful business at 6 times
depressed after tax earnings. The majority of today's earnings come from recurring replacement
sales. Earnings have been significantly higher in the past and any new mines or mine
expansions (that source from this company) would lead to significantly higher earnings. There is
no substitute for metallurgical coal in the steel making process and as long as infrastructure
continues to be built with steel (a certainty), demand will increase for metallurgical coal.

Furthermore, excess net cash on the balance sheet is more than two-thirds of this company’s
market cap. If cash is netted out, the company is trading for less than two times after tax
earnings. To illustrate how cheap this is: if the company were to liquidate tomorrow (an outcome
that is not happening) we would make a significant amount of money. I see little chance of
downside because once cash is netted out, we are paying very little for the operating business.
Better yet, they pay out most of their earnings either in dividends or allocate it towards share
buybacks - with share repurchases reducing the share count by 10% so far this year. Over just
the past three years, the company has returned two-thirds of the current market cap back to
investors. I am impressed with the management team’s capital allocation ability. No other
investors seem to be paying attention to this gem - the chairman of this business (who I think
highly of) told me I was the only investor to call him this year to learn about the business. While
the market is focused on more sexy names, we have been given the opportunity to buy into this
high-quality niche business at a very attractive price. I expect once the market recognizes the
value of this company, we will make multiples on our investment.
Note

You will notice I have not disclosed the name of the above holding. The reason for this is to
protect my current investors. I am not in the game of giving stock tips, and disseminating our
thesis to a wider audience could hurt us because this letter is sent to both investors and
interested parties. Current investors should find it easy to determine which company is being
discussed by looking at their account statements. If you are a current investor and are curious
what Company A is, I am more than happy to disclose.

Conclusion

The businesses we own trade a significant discount to my assessment of their intrinsic value
and as a result, I am very bullish about our prospects. Our cash position will also give us the
opportunity to act quickly when I identify additional mispriced assets.

I am humbled by your confidence and trust in me. My goal is to compound your money at an
attractive rate over the long run and I am hopeful that if I deliver on this goal, you will commit
more of your capital to me over time.

I look forward to updating you on the progress after year’s end. As always, feel free to reach out
at any time with questions or comments.

Warm regards,

Alex Bossert
Disclosures

The information contained herein has been prepared to assist current and prospective investors
in making their own evaluation of Bossert Capital and does not purport to be all-inclusive or to
contain all of the information a prospective or existing investor may desire. Bossert Capital
expressly disclaims making any express or implied warranties with respect to the fitness,
accuracy, or completeness of the information contained herein for any particular usage,
application or purpose.

Prior to making any investment decision you should consult with professional financial, legal and
tax advisors to determine the appropriateness of the risks associated with such an investment.
No assurance can be given that the objectives of a particular investment will be achieved or that
an investor will receive a return of all or part of his or her investment. All investments involve the
risk of loss, including the loss of principal. In no event shall Bossert Capital be responsible or
liable for the correctness of any material used herein or for any damage or lost opportunities
resulting from the use of such material.

Bossert Capital, LLC is a Registered Investment Advisor. This communication does not
constitute a recommendation to buy, sell, or hold any investment securities.

Contact

Bossert Capital welcomes inquiries from investors and potential investors. Please visit our
website at www.bossertcapital.com or Alex Bossert by email: Alex@bossertcapital or by phone:
320-224-4517.