GAD PARTNERS FUNDs

440 Southview Dr Athens, GA 30605 Telephone: 706-340-4817 Fax: 706-549-7141

, L.P

sham@gadcapital.com www.gadcapital.com To: From: Date: Re: Limited Partners of the Gad Partners Fund Sham Gad, Managing Partner May 8, 2012 2012 1st Quarter Results

______________________________________________________________ Dear Partners: During the first quarter ended March 31, 2012, $93,000 was added by new and existing investors in GPF1. The year-to-date performance numbers, as of 03/31/12, are: Dow -3.9% -31.9% +22.7% +14.1% +8.4% +8.80% +1.70% Nasdaq -1.6% -39.9% +45.4% +18.2% -0.8% +19.00% +4.08% S&P 500 -3.3% -37.0% +26.5% +15.1% +2.1% +12.60% +0.40% GPF -3.4% -50.9% +60.0% +6.9% +3.1% +22.10% +0.24%

10/1/07 - 12/31/07 1/1/08 - 12/31/08 1/1/09 - 12/31/09 1/1/10 - 12/31/10 1/1/11 - 12/31/11 1/1/12 - 03/31/12 Annualized

Index returns include reinvestment of dividends. GPF returns are net of fees and expenses.

General Comments Gad Partners Fund delivered a 22% return during the first quarter of 2012. A nice tailwind from Mr. Market certainly did not hurt, but GPF held some highly undervalued securities heading into 2012 which did not go unnoticed by Mr. Market. GPF also benefitted from a nice collection of special situation investments that we made in 2011 that worked out nicely during the quarter. I will elaborate on those exited positions in the Investing Activities portion of this letter. I should reiterate that special situation investment opportunities are investments whose catalyst is independent of overall market performance; in all likelihood GPF would have earned those same returns regardless of market performance during the quarter. As a brief refresher Gad Partners Funds focuses on only three investment categories: 1. Generals (Undervalued Securities) the vast majority of our ideas will fall in this bucket although not necessarily where we will concentrate the majority of our assets. Example Investments: Potash Corp, Advance Auto Parts, and Bank of America 2. Special Situations investments where a specific, non-market event is the catalyst that spurs the value creation. Few ideas fall into this bucket but its an area where I am happy to allocate significant capital given the highly skewed probability of a favorable outcome. Spin-offs, liquidations, and various forms of arbitrage fall into this category. Example Investments: Premier Exhibitions, Carrols Restaurant Group 3. Control Issues investments where I seek to have a direct influence on the value creating catalyst. These are the opportunities where $1 of intrinsic value can be bought for 50 cents but through the added efforts of providing input in the business decision making process, that intrinsic value can be increased to $2 thereby magnifying the upside. In this arena, we expect to have a holding period of many, many years. High preference is given to opportunities where I can work cooperatively with existing management teams that demonstrate a passion for their business and an alignment of interest with shareholders, although that preference may not be an option at times. Example Investment: Paragon Technologies Our relatively small size in the investment world affords me the luxury of looking anywhere and everywhere for opportunities to exploit. Whether its a $25 million special situation micro-cap or a $2 billion mis-priced business, lack of size is a significant edge in the investment arena an edge I strive to exploit for our partnership. The Fallacy of Performance Numbers When evaluating the performance figures of any investment fund, many investors and spectators alike often draw the wrong conclusions. A major part of this problem is caused directly by the investment media which is responsible for disseminating the performance data. When an investment fund or money manager receives 5 stars as the best performing fund of the year or decade, rarely does the timeframe being evaluated coincide with the

actual performance experienced by the actual investors in that fund. And that is troublesome. Consider a fund dubbed top performing because it generated annualized returns of 15% a year for the past decade. Only those investors who put money on day one of that decade, make no subsequent additions or withdrawals, and remain invested for that exact decade will experience the 5 star results. Inside that decade are time periods with vastly differing results that were actually experienced by the majority of investors. Of course I understand why performance numbers are presented the way they are: over the long-term you have to be able to evaluate an investment operation by a consistent time series set of data. But the vast majority of investors are not invested in a fund on day one (rather unfortunately, many come in after the accolades are in and experience disappointing results but thats an entirely different subject matter). So there is more than meets the eye with the performance numbers that are promoted to the investing public. Lets take Gad Partners Fund to task on this issue. To the investing public, they will look at our 2008 results and immediately formulate an opinion that because we lost 50%, the Fund is too risky. As I have articulated to both limited and potential partners in previous letters, 2008 may have been the most valuable year for GPF because it allowed me to evaluate what went wrong; what I discovered is that our under-performance in 2008 was not because I made bad investment decisions but because the fund was structured to experience significant volatility. Volatility, when isolated, can be used to an investors benefit inasmuch as it provides an opportunity to own assets at bargain prices; its when volatility is combined with a liquidity drain that proves disastrous. Fortunately for GPF we did not come close to experiencing liquidity issues in 2008 but had liquidity been an issue, then the volatility in 2008 could have been permanently painful. To be sure, my value oriented approach ensures that we would have a down year in 2008; but had the structure been different, our losses would have been significantly lower and thus we would have had more gunpowder to go value hunting with. As I have mentioned before, long-term investment success comes from out-performing during down markets and letting the upside take care of itself, which can often mean under-performing during bull markets. After 2008, the metric that matters most to me is an absolute one: how we stack up during the lean years. So far, that really hasnt been tested except in 2011 when the majority of value funds experienced losses. With respect to our performance numbers, if past performance is any predictor of future results, what I expect to say about GPF is that it is hard wired to ensure that if another 2008 occurs again, we will outperform. At the end of the first quarter, I am pleased to say we have recouped all the losses incurred in 2008. The only reason that matters to me is from a personal standpoint: the continued patience and trust in GPF as a steward of your precious capital has I hope, to varying degrees, been productive. Gad Capital charges no asset management fees of any kind nor will it ever; I get paid on performance. Rest assured I plan on getting aptly compensated but only in lockstep with the limited partners. With respect to understanding performance figures, we only had a handful of investors come in on day one (yours truly was one of them if I wont eat my own cooking, neither should you). The dozens of investors who have followed are, to varying degrees, doing vastly better than all three benchmarks. Compounding is the undeniable wealth multiplier and the past

few years have shown how a patient, value oriented mindset, can unleash the force of compounding.

Investing Activities As I mentioned earlier, 2011 presented some intriguing special situation investment opportunities, a couple of which I will quickly dissect. Carrols Restaurant Group (NYSE: TAST)
Average Purchase Price: Return: Annualized Return: $9.60 24% 96% Average Sale Price: Holding Period: $11.90 3 months

At the time I began looking at Carrols the company owned and operated nearly 300 Burger King franchises along with the Pollo Tropical and Taco Cabana Mexican restaurant concepts. In February 2011, Carrols announced its plans to spin-off the Mexican concepts into a separate publicly traded entity, Fiesta Restaurant Group. Post spin-off, the Burger King franchise would retain the Carrols name. The current valuation was such that the value of Fiesta entity alone would like command a higher market value than the value being ascribed to all of Carrols. Here were the relevant figures at the time: Carrols (pre-spin) EBITDA 2010: $75M 2011: $75-80M est. Pollo Tropical and Taco Cabana (Fiesta) EBITDA 2010: $55M 2011: $60-$70M est Burger King (Carrols post-spin) EBITDA (Burger King) 2010: $20M 2011: $10 to $15M est Fiesta was going to be spun out with approximately $200 million in debt while Burger King would have $60 million in debt. When I began looking at Carrols, it had a market cap of $220 million. The comparable EV/EBITDA multiples for quick casual fresh restaurant concepts were:

Jack in the Box: 8 Wendys: 8 Buffalo Wild Wings: 9.5

Chipotle: 24 Panera Bread Company: 12

Wendys, which continues to struggle operationally, suggested the lower range multiple. I dismissed Chipotle, which truly has no peer comparison, as an outlier. But the Pollo Tropical and Taco Cabana concepts were growing same store sales at 5% to 9% while names like Jack in the Box and Wendys were showing little to no sales growth. More so, the casual dining sit-down atmosphere of Pollo Tropical and to a lesser extent, Taco Cabana, made the comparisons to the pure fast food concepts somewhat inaccurate. As a standalone business, it was highly likely that Fiesta would command a higher multiple than a typical fast food joint. Management understood that. But because the spin-off was months away and had been delayed once, investors treated it with skepticism. This was despite the fact the company was beginning to segment the financial results to provide greater transparency as well announcing the key executives of the two separate companies. Even still, stranger things have happened. But when I ran the numbers, the risk was very minimal with respect to the upside. Applying an 8x multiple to Fiestas 2010 EBITDA yielded an EV of approx $500 million, or a market cap of approx $300 million for Fiesta. Applying an 7x EBITDA multiple yielded an EV of $90 million, implying an equity value of $30 million for Burger King

Over the ensuing months, as management continued to articulate is goals for a spin-off, the share price started to react. I exited the position prior to the spin-off when the market cap approached $300 million. Today, as two separate publicly traded entities, Carrols has a market cap of $130 million while Fiesta has a market cap of $278 million. An announcement that Carrols would acquire 300 additional Burger King restaurants sent Carrols shares flying. While we may have exited the position a little early, our investment was based on the value creation of the spin-off transaction not some hope about a potential acquisition. Trident Microsystems (TRIDQ)
Average Purchase Price: Return: Annualized Return: $0.14 178% 1,071% Average Sale Price: Holding Period: $0.39 2 months

I started looking at Trident in late January 2012 after it came to my attention that the company filed for bankruptcy earlier that month. What intrigued me here was that the

balance sheet was excellent; Trident had no debt. The bankruptcy was a voluntary decision to preserve the assets of the company. With 183 million shares outstanding, Trident had a market cap of $26 million when I began to look closer. The asset side of the balance sheet totaled $160 million, which consisted mainly of $55 million in cash and a $55 million stalking horse bid for the companys STB business. A stalking horse bid is essentially a low ball offer bid that is designed to attract higher bidders. Basically the stalking horse bidder commits to buying the assets at a particular price but the assets can be sold at a much higher price with a fee paid to the stalking horse bidder if a higher price is found. Another interesting asset was a note receivable from NXP as a result of a transaction between NXP and Trident that left NXP as Tridents largest shareholder with a near 60% stake in Trident. Clearly NXP had every incentive to preserve maximum equity value. Lacking any debt, the issue wasnt whether or not there would be any value left over for equity holders, but rather how much the equity would be available to shareholders. Depending on how one valued the non-cash assets, the residual equity value range was $30 million to $60 million while the current market cap was $26 million. In essence, a worst case outcome would lead to a small gain at the then current market cap of $26 million. I established a 2% position and before I could buy more, the sun came up. Very shortly after our investment, the picture got better for Trident. The original stalking horse bidder ended up purchasing the Set-Top Box business for $65 million instead of the original $55 million bid. Based on Gad Partners Funds investment at a $26 million market cap, that extra $10 million created an additional 40% upside from the lower equity value range. After this announcement, Tridents market cap doubled and I began to exit the position. Not surprisingly, the market of value of the equity continued climbing higher after our exit. The Fund continues to hold a very negligible stake in Trident which I plan to exit accordingly. Paragon Technologies As you were all made aware via the press release issued on March 16, I was elected Chairman of Paragon Technologies. I, along with the newly constituted Board, am working diligently on the behalf of all shareholders, the largest shareholder being Gad Capital. As Chairman, future correspondence relating to Paragon will have to be disseminated through the appropriate public channels for all shareholders. As any future public announcements are made, I will certainly alert you to them. Rest assured that as always, there is 100% alignment of interests between Paragons success and that of Gad Partners Fund; the same goes for my role as both General Partner and Chairman. At the end of this letter, you will find our current Net Asset Value figures.

Miscellaneous As I mentioned in the previous letter, our broker, Ajay Desai and his team left Morgan Stanley and joined UBS. I would have liked to have had a smoother transition but things have finally settled in. We continue to get first class service from the entire team at Desai.

Your quarterly statements will arrive electronically by email. If you have any questions, dont hesitate to contact me or Nenette Lee (nlee@liccar.com) at Liccar. Alignment of Interests Both funds are below their historic NAVs and hence no fees were earned. Gad Funds charges no management fee, just performance fees - of the returns after a 6% annualized return subject to high water marks. I only get compensated when you make money. I win when you win. Our interests are completely aligned.

Next Opening July 1, 2012 The minimum investment for the Gad Partners Fund I is $250,000, and one needs to be a qualified investor as defined by the SEC. The subscription documents have details on who is considered a qualified investor. The next opening is July 1, 2012. Existing Partners can make additional investments in increments of $25,000 at each opening. Currently per the legal documents, all funds are subject to a two year lock up from date of investment. Thanks for your interest, referrals, and support. Feel free to call me at +1.706.340.4817 or email me at sham@gadcapital.com with any questions or comments. Warm Regards,

Sham Gad

Appendix A: Performance History GPF I Number of Units 41,500 46,500 56,891 71,028 74,074 82,397 108,925 120,837 120,837 120,837 120,837 140,328 153,213 155,784 180,668 192,945 192,945 192,945 178,665

Date 10/1/07 12/31/07 3/31/08 6/30/08 9/30/08 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 3/31/10 6/30/10 9/30/10 12/31/10 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12

NAV $10.00 $9.59 $8.84 $8.21 $6.00 $4.71 $4.48 $5.22 $6.53 $7.46 $7.65 $6.64 $7.63 $8.04 $8.14 $8.03 $7.64 $8.28 $10.11