Letter to the shareholders of Graham Theodor & Co. Ltd.

Performance

Year

Return

S&P 500 Return

S&P/TSX Return

2007

11.20%

5.49%

9.83%

2008

8.60%

-37.00%

-35.00%

2009

58.60%

26.46%

26.03%

2010

46.20%

15.06%

14.50%

2011

14.50%

1.46%

-12.40%

2012

34.90%

13.41%

4.00%

2013

75.37%

29.08%

9.58%

2014

22.90%*

13.70%

8.61%

Returns prior to 2010 are for the Theodor Tonca Joint Account which predates the inception of Graham Theodor & Co. Ltd.

* Return includes one-time realized gains from PARG & BOBS divestitures.

Good things come to those who wait? Seldom true in my personal experience,
but patience and persistence coupled with a major purpose and a definite
plan for its achievement has taken Graham Theodor, with the acquisition
of its second operating subsidiary in just as many years to a company with
owners/shareholders in three countries on two continents(North America &
Europe), operations in two countries(two US states and one Canadian
province), nearly ten employees and close to two dozen independent
contractors.
It goes without saying that we are still very far from where we ultimately
desire to be as a company, but we are off to a good start from humble
beginnings and now sit upon a solid foundation on which to build upon. In
this respect, we will be right back at it plying our trade and seeking
another deal in 18-24 months time or possibly even sooner.
The aforementioned second owned operating subsidiary which is currently
in the midst of being re-branded as I write this. Seeing as the company
was previously doing business under its former owner's personal name
(which he is retaining;). What we received in turn is 100% of a long
established retail fuel distribution business, operating from its current

location in Indiana for a little over 30 years now, experienced staff in

place, strong underlying economics (little in the way of long-term
receivables as business is primarily transacted at the point of sale)and a
highly recurring client base as approximately $1 in every $20 spent in the
United States today is spent on gas. We couldn't be happier as this
purchase increases Graham Theodor's annual revenue by over 300%, cash flow
from operations by some 120% and book value by a more modest 20%, which
owners will see fully reflected in the second half of 2015 and full year
starting in 2016.

Trent Realty Inc.

To say that the past year was challenging for the company would be an
understatement. This was to be expected though, with US residential
foreclosure filings down by approx. -24.1% year over year through December
2014 according to RealtyTrac. Likewise the percentage of non-current
mortgages were also down (-5.69%), ditto for the amount of seriously
delinquent mortgages (90 days or more past due) hitting a seven year low.
All of the above negatively impacted Trent's number of client listing
assignments for fiscal 2014 one of the single most important measures
for the company and although the relevant metrics alluded to above have
been trending positively (that is, negatively for Trent and the default
services industry as a whole) for the past 60 months since 2009, there is
some silver lining to the numbers. The State of Florida Trent's home
base, which has still not fully recovered from the damage done by the subprime mortgage bust, had some 118,089 completed residential foreclosures
for the twelve month period ending November 30, 2014 far and away the
most of any state in the nation. The Sunshine State also ranked second and
third in the country in terms of serious delinquency rate and residential
foreclosures as a percentage of all mortgages, respectively. Making it an
attractive destination not only for snowbirds, but also residential real
estate buyers of all sorts.
Apart from the normal ups and downs of the economic cycle and the more
wild pendulum swings of booms and busts (artificially induced or
otherwise)experienced the past few years, we fully expect the default
services industry to more or less normalize long-term that is not be
great, but not be quite as bad as these last few year's past.
With this in mind, we have taken some necessary organic steps(see here)to
extend the geographic reach of Trent's core services beyond its home
market, thereby meeting ongoing demand abroad (Canadians as a group are
the single largest or second largest foreign buyers of residential real
estate both distressed and non-distressed in nearly all US states). As
well as other (yet to be announced) initiatives which will not only
diversify the company's revenue stream, but also introduce more passive
and higher margin ones to boot, all while fulfilling some critical needs
for the default services industry as a whole. Stay tuned;)

Pargesa Holdings S.A. & Brazil Fast Food Corp.

Now some words about our dearly departed. We held our minority ownership
stakes in each company for 3 and just over 5 years respectively, shortterm by our standards;)
The underlying reason necessitating the divestiture of each holding
differs, but nonetheless falls well within the scope of why we would
consider selling anything as outlined below:

A better and or even more undervalued buying opportunity arises.

The business's and or industry's underlying economics have permanently

changed for the worse.

Management or labor strife forces a sale.

Short of the above, I can confidently say that we would never sell a
minority or majority interest in any business. A few years of under
performance won't do it (so long as management possesses the right
underlying philosophy and principles as applied to their business), short
term macro-economic conditions won't do it and share price fluctuations
(of any nature) sure as hell won't do it.
The Pargesa Holdings and Brazil Fast Food Corp. dispositions happened to
be in line with the first and third reasons outlined, respectively. In the
case of Pargesa, though still appraised by the open market far below its
net asset or break-up value of 104.20 CHF at the time of our sale back
in May of last year, the better opportunity came in the form of a
controlling stake in our most recent purchase for a price of only some
0.5x its current cash flow from operations.
Update: It seems that (for once) our timing was rather fortuitous. Since
selling off our Pargesa stake for around 80 CHF per share over multiple
ask orders, the company's adjusted net asset value has subsequently
dropped (for a multitude of reasons) to approx. 88.51 CHF per share as of
January 16, 2015 the latest figure available as this letter is compiled.
As for BFFC, our ownership was not continued for a decidedly different
reason altogether. Fellow owners will remember the company's failed
privatization attempt back in September of 2013 which was voted down by
a majority of shareholders two months later. A case of wrong way to do
the right thing.
A going private transaction to re-double management's efforts solely on
the business and its ongoing operations and do away with other obligatory
regulatory distractions associated with publicly listed companies is
always a good thing, but attempting to low-ball fellow owners in
said same transaction (as subsequent events have proved) isn't. Despite
management's deep expertise of the fast casual restaurant industry and its
very apparent operational knowledge, their underlying philosophy was

starkly at odds with our own in this matter hence our departure from
the ownership ranks.
All told, our realized gain from the Pargesa share sale netted us an above
average return of approx. 54% (or 21.6% annualized) over the two and a
half plus years of our ownership with BOBS earning an out-sized 112%,
some 22.4% weighted annually over five years time given our avg. selling
price of just over $17.30 per share.

Silver, Gold & Commodities

Respectively down -8.38%, -2.1% & -5.76% in 2014. Nevertheless, we refrain
from holding out any expectations of such positions and certainly do not
anticipate them to contribute to overall results in any given year, except
only over the very long-term.
We believe the world is a far more dangerous, risky and perilous place
at the present than most care to appreciate or even admit. Therefore we
will continue to do just as Sun Tzu advised and:
Rely not on the enemy's (economic maelstrom) not coming, but on our own
readiness to receive it; not on the chance of him (it) not attacking, but
rather on the fact that we have made our position unassailable.

Present Holdings

Holdings as of July 1, 2015:

Holding

Avg. Cost

OSS Energy & Retail Ltd.

Trent Realty Inc.

London Finance & Investment Group plc

$0.24

Retail Holdings N.V.

$17.15

Silver Bullion Trust

$16.64

Sprott Physical Gold Trust

$11.98

Broad Commodity Index

$20.55

Avg. cost shown on a per share basis

Holdings exclude various special situation investments & cash

**************

Super Ugly
Much like the December 2001 Jay-Z freestyle by the same name, some of the
following transgressions and omissions are downright nasty. Though
invaluable to look back upon nonetheless so as to glean the many benefits
they never disappoint in offering us.

WSP Holdings Ltd.

This marks the first (and hopefully the last) time that a company has the
dubious honor of being included in this section two consecutive years
running.
Faithful readers will remember WSP from last year's letter as one of two
merger arbitrage positions that went astray. While Cooper Tire & Rubber
Co. went on to produce a small (approx. 8%), albeit realized gain, WSP on
the other hand proceeded to sink faster than a free floating Euro! Our
entire remaining position which was not sold amounts to a complete writeoff as the company subsequently de-listed from the NYSE and is currently
in the early stages of bankruptcy proceedings, a going-private transaction
needless to say never being consummated.
While very much an isolated incident as this is the first such contrivance
out of a sample of more than 60 special situation investments made by
yours truly possessing similar characteristics since 2007, I cannot help
but dwell on the one thing which was different this time around
leverage.
No, not on our side as we have always made it a practice never to utilize
margin debt, irrespective of the circumstance. But rather debt at the
company involved in the merger (going private transaction in this
particular case). By the time the plan of merger announcement to go
private was formally announced in February 2013, WSP already had some
$852.9 Mil. USD in both short and long-term debt outstanding. The company
had properly disclosed this and other risks concerning its borrowings, I
simply failed to heed and take these under serious consideration given the
short-dated nature (less than 6 months) of the announced transaction, for
this I am solely responsible.
Though the WSP debacle (as it shall be called going forth;) originally met
all of our pre-set criteria (small in size sans the assumption of debt,
CEO also company's largest single shareholder, deal approved by both
management and directors alike, etc.) this risk of overall company
leverage we (or rather I) failed to be mindful of is what ultimately did
us in, in this instance. Even though sufficiently heeding this risk in the
future would further constrict and limit our operations in this

specialized field going forward, I say so be it. As safety of principle is

and always will be our primary concern, rather than a few extra percentage
points of return. Good riddance!

Anthony Clark International Insurance Brokers Ltd.

This was that rarity a voluntary liquidation. Anthony Clark in the first
and second quarter of 2014 respectively, sold substantially all of its US
& Canadian assets in two separate transactions.
First came the divestiture of its Virginia based Addison York Insurance
Brokers Ltd. to a general agency in early March, followed by the sale of
its six Canadian property and casualty insurance brokerage offices to
BrokerLink, one of the largest P&C brokers in the country in May 2014.
After completion of said transactions, the company once outstanding
liabilities were paid down proceeded to distribute the remainder to
shareholders (an aggregate of some $0.35 per share over two or three
installments). If one reverts back to the ACI share price quote history,
they will see that the company's per share market value was no more than
$0.25 per share the day the sale of its US assets was initially disclosed.
Had we acted on this knowledge, our realized gain upon distribution
actualization would have amounted to at least some 34%, in less than 6
months time.
Let this stand as a lesson to anyone who may come across the rare,
ever-elusive voluntary liquidation (akin to the ivory-billed woodpecker
thought to be the world's most endangered specie;)Do the exact opposite of
what we did in this case!

**************

More Than Just Investing

I really hate to keep telling people that what I do, I have never
considered to be work in the strictest sense of the word. Don't get me
wrong, I am not in love with all of it. Some things primarily at the
holding company's administrative level can be a REAL drain (record
keeping, filings, legal (read contractual) matters all encompass this).
Fortunately I am ever grateful to my business partner Graham Young whom
takes up most all of the slack in this regard, thanks Graham!
But I digress, the primary reasons investing/allocating capital has never
been a labor or arduous in any way at least to me, aren't the obvious ones
that would most likely come to mind first for many material, superficial
and certainly not prestige as I don't hold my own profession in very high
esteem for a multitude of reasons some of which go on to be mentioned in

this section.
Below are the real reasons why I do, what I do, in my own words.

For The Love of the Game. This aforementioned game should not be
confused with picking stocks, sitting in front of a computer screen
all day watching financial instruments of dubious merit gyrate(who
would love that? or doing anything strictly quantitative in nature
(such as highly sophisticated algebra:/
The game reference should rather be interpreted as enjoying, no
loving, the process of reading, thinking, thinking some more and
hopefully learning as much as possible about a given operating
business, its underlying economics, the people who founded and operate
the concern, its particular industry and so on and so forth. This
activity can be absolutely enthralling and stimulating to no end I
can easily get lost in it for more than several hours at a time and
end up wondering afterward where the day ever went.
In short, enjoying the process far more than the proceeds (or more
than anything else for that matter) as Mr. Buffett lamented long ago,
is, was and always will be my first consideration in deciding whether
to pursue anything in life.

My Way. The lyrics to Frank Sinatra's timeless 1969 track say it much
better than I ever could:
I planned each charted course. Each careful step along the byway
And more, much more than this I did it my way. Yes there were times
I'm sure you knew When I bit off more than I could chew But through
it all when there was doubt I ate it up and spit it out, I faced it
all And I stood tall and did it my way.
The Seven Military Classics of Ancient China which pre-date the year
960 teach us that there are only two methods of attack a direct
method (called Cheng)and in-direct method (Ch'i). For example, there
are not any more than five musical notes, yet the combinations of
these five give rise to more than a billion possible melodies that can
be heard. Just the same, there are not more than five primary colors
(black, white, blue, red and yellow), yet in combination they can
produce almost an endless array of hues.
It is no different when it comes to the wicked craft of investing.
There is a direct method (got to school, hope to get hired as an
analyst, perhaps break out on one's own eventually by starting an
asset management firm, get it registered with the relevant financial
authority wherever one chooses, comply with their regulations,
mandates, etc., all the while doing the best one can under such
conditions). Then there is the in-direct method(the way I did it:/
which opens one up to nearly endless possibilities.
By simply being a business owner (holding company), the regulatory
burden is not nearly as heavy, there are far less rules to comply with
in regards to allocating capital - no mandates to uphold in terms of

invest-able asset classes, size of operating businesses one can

allocate capital to, absolutely no geographical limitations and to
boot one can even hand pick the owners/shareholders one wants to be in
business with.
It is this seemingly endless investing universe and freedom (being
able to purchase minority or majority stakes in private or publicly
listed businesses which i understand, the size of my choosing,
anywhere in the world, at most any time for the very long-term that
I always desired. Plus, the last thing I ever wanted was some suit in
an office making the process I so enjoy any less fun;)

Purpose & Fulfillment. Often I have asked myself and pondered why I do
what I do? Sure I genuinely enjoy it and am immensely fortunate to be
able to practice my chosen craft in a way most befitting to my
personality as mentioned above.
But do I want my life's work to amount to exercising discrepancies and
efficiencies in a marketplace? Or merely swapping pieces of paper
every now and then or being a liquidity provider (an argument I never
personally bought into. The early investment trusts of the previous
century could genuinely lay claim to such a statement, but not the
market makers of today). The answer is a definitive NO!
Right from the time I got my start, I was clear about wanting to own
businesses or significant pieces of businesses (as opposed to just
renting them) for the very long-term. Businesses which provide useful
services such as transporting and delivering goods, that help
facilitate property ownership or any number of other essential
activities that make a positive contribution to the communities which
they serve.
I fully realize (and appreciate) that others may not share such a
benevolent view and their sole interest lies in obtaining federal
reserve notes, Canadian dollars or whatever other currency may be in
fashion today. But insofar as capital accumulation and compounding is
concerned, I believe this is also the best way to achieve that end
that is to be a part of something that truly fills a need, for
someone, somewhere and to do so in a constantly more efficient manner,
providing more and better service at a lower price point.
To quote B.C. Forbes He is an unmitigated fool who imagines for a
moment that it is more important to make the money than to make it
honestly.

Best in the World. This last reason is simply meant to signify that
whatever it is that one chooses to undertake in his or her life, be it
caring for children, cleaning offices, professional athletics or
anything else, strive to be the very best one can be at it. A master
of one's craft, if one will.
I believe the natural human disposition to be unsatisfied, to want and
to boundlessly aim for ever higher peaks in one's specific area of
interest to be one of the highest and most noble earthly pursuits.

Otherwise, as the American author Robert Fulghum once said Anything

not worth doing is not worth doing well.
In the midst of doing so, one's work can become a metaphor for life.
Intimately getting to know oneself, your genuine likes and dislikes,
strengths and weaknesses all fall among the many lessons you will pick
up. As is learning about others, our inherent hereditary biases,
external/material influences and how to deal with these rationally (at
least some of the time;) If one is curious and courageous enough to
look beyond the purely technical and minutiae of their work and dare
to venture just a sliver into the qualitative and unknown, this (more
often than not) will be the fortunate end result at least in my
personal experience.
As the all-time wining-est coach in college baseball history (1,917
career wins as of this writing, five coach of the year honors, five
national titles and the list goes on;) August Garrido once said The
question is, as a result of winning, do we lose our ability to keep
our focus or do we stay committed to the details?
For myself, the craft that I have chosen, though far from an art form
and even further from a science will always be more than just a
practice or work, but represent an opportunity, a fascination, a
deep burning desire, an obsession and for better or worse a mania!
Even though the only constant in this universe is change, this much I
am certain will always remain fixed.

**************

Miscellaneous
This letter was compiled in part at the following awesome locations
Vancouver Public Library, Surrey Public Library, Revolver (don't drink
coffee, but I sure do love my hot chocolate;)

Sincerely,
Theodor Tonca
Chairman & CEO