Savio Capital Partners

Presentation to Investors

June 2010

• Started in December 2009• A value investing shop• Prefers to buy small/micro businesses

Investing Basics

Old School Advice: Save a portion of your income every month and place it in a bank.

Modern age Advice: Save a portion of your income every month and place it in on high yielding investments.

Old School AdviceContrary to the belief that cash in the bank is the safest, it’s not. With interest rates below 3% and

inflation rate above 3%, your peso today is worth less than your peso tomorrow.

Modern Age Advice

Although the modern day advice is best, the key issue here is

asset allocation – putting your eggs under different baskets.

Where to deploy your cash?

Our best advice is to have a 3-6 months worth of emergency fund placed in short term instruments (i.e., time deposits, treasury bills, SDA’s). For excess cash that you have, do a 50:50, in terms of bonds and stocks.

The other 50%Some issues you might want to consider: • Mutual funds have different kinds of fees – front (sales) load fees, performance fees, management fees and exit fees. • Majority underperform the benchmark indices in the long run.• Actively managed fund diminishes returns through higher transaction costs. • Beware of people advertising RETURNS. (worse, guaranteeing returns!)• Remember that long-term returns of the stock market is less than 20%. (Lower expectations pays)

The Alternative Vehicle?The Savio Capital Way• Just one fee – 25% share of returns above 4% (Below 4%, your returns are yours!)• We aim to target 10-15% per year of returns (Please note: We aim to target). • Our process minimizes on transaction costs (We don’t buy and sell frequently. We want our partners to get rich, not the stockbrokers). • We are value investors. (Translation: We buy business cheap)

Value Investing“I’m not looking at quarterly

earnings projections, I’m not looking at next year’s earnings, I’m not thinking about what day of the week it is, I don’t care what investment research from any place says, I’m not interested in price momentum, volume or anything. I simply ask: What is the business worth?”

-Warren Buffett

So, how it works?

Shares of stocks of listed companies

Owner’s Earnings

Our Buying Criteria – 4C’s

1 – Circle of Competence

VS.

• We buy simple to understand businesses.• Although it’s cool to buy wind power businesses, we’ll still stick to a lemonade stand that we can understand.• By sticking to simple and understandable businesses, we avoid surprises.

2 - Cashflow

•We prefer businesses that earns cash and has strong financial position. •We also like honest and capable management that allocates cash in the most effective way.

Shareholders Management

3 - Cheapness

Buying opportunity

Selling opportunity Anatomy of a

Stock Price

Stock Price tanks…Stock Price

shoots up!

4 - Catalysts•These are events that will close the gap between the value and price. A stock that remains cheap for a long time is not value. But in all cases, we require a wide MARGIN OF SAFETY between the value and the price.

What’s inside Savio?• Jackson Hewitt Tax Service – problematic tax preparer•Barnes and Noble – beaten giant “brick and mortar” bookseller•Endo Pharmaceuticals – threatened growth stock•Deswell Industries – forgotten stock in an unloved and boring industry

Jackson Hewitt Tax Service – Overview

Second Largest Tax Preparer in the US• Network consisted of 6,584 franchised/co-owned offices• Prepared between 3-4% of all tax returns by a paid preparerThe Problem?• Their main Refund Anticipation Loan (RAL) provider closed its tax refund group before

tax season as ordered by the FDIC (an unfortunate event, indeed!). This is almost 20% of total revenues!

• Tax returns were down 15% as a result of the loss of RAL product (Although Wall Street expected worse between 19-20%)

• Most individuals who has simple tax filing cases use a do-it-yourself software. • No RAL provider as of today. The Opportunity?• Reduced workforce by 10-15% (Bigger Margins, Leaner Org)• Once Jackson Hewitt signs up RAL and talk to franchisees, revenues will improve. • Complicated tax laws due in Tax Season 2011 makes it difficult to do the filing yourself.

Jackson Hewitt – Why priced for extinction?•Current price of $1.75 reflects that JTX is going to close shop any time soon. That view is no longer valid as the company has refinanced its debt and negotiated with debtors. •On an expected value basis, we value the company at $3.50 as floor price and $24 as the ceiling price, giving us a 8:1 risk/reward ratio – a compelling case!•However, we don’t think the price will move that much this year as 40% of free float is short. If JTX can come up RAL provider before end of this year, we may see doubling our money on this stock.

Source: Yahoo! Finance

Price Tag: $50.34mln ($1.75 a share)

Barnes and Noble – Overview Largest Brick and Mortar Booksellers• Operates more than 700 bookstores under Barnes and Noble; 50 under B. Dalton. • Chain similar to National Bookstore with an environment similar to Fullybooked. The Market’s View• The brick and mortar model is not cool; online retailing is the way to go. • Last year’s recession affirms the above belief with declining sales for majority of the

retailers, while online retailers have shored up online sales. • Latest e-reader Nook (Competitors: Ipad and Kindle) can’t make it. • Lack of management’s willingness to create shareholder’s value (i.e., management

owns more than 30% of the stock). Our Variant View • Same store sales will pick up this year with the full year addition of B&N College

Bookstores and Nook picking up speed. • Activist investor Ron Burkle (Yucaipa) will convince management to increase his stake

and initiate “shareholder-friendly” changes. • Brick and mortar competitors – BAMM and Borders are smaller in size and have issues

on financial flexibility.

Barnes and Noble – Not getting market’s respect•No brainer computation: Private Market Value of B&N Bookstore is $500mln (which will contribute 20% of revenue). The whole Barnes and Noble is selling at $1bln ($18.47), which gives that the other businesses that earns $200-300mln in cash flow selling for $500mln or a 50% yield. •Assuming BKS can grow its revenues at 10% (which is attainable from the inclusion of the college bookstore), we think it is worth $32-40. •Market prefers Amazon. Other alternative route to realize the value is to make the company private and management can pay up to 5-6x of EBIT – the same price they paid for the privately owned B&N bookstore.

Source: Yahoo! Finance

Price Tag: $1.06bln ($18.47 a share)

Endo Pharmaceuticals – Overview Market Leader in Pain Management• Strong portfolio of brands – Lidoderm, Opana, Percocet, Frova and Voltaren• Recently acquired Indevus and Healthtronics to further strengthen their niche in pain

management segment• Ironclad balance sheet – uses cash to acquire similar companies; minimal debt (Who

wouldn’t love that?)If this is good, why so cheap?• There were fears that a generic alternative to Lidoderm is now in the works c/o

Watsons Pharmaceuticals. Note that Lidoderm is the main revenue generator of Endo Pharma – more than 50%.

• Pharma stock analysts recommend a HOLD rating on the stock (translation: SELL) on the generics issue – although the patent is protected until mid of 2012.

• These market perceptions are indeed short-term in nature. We believe that the market have missed out the management initiatives to diversify the revenue base through brand and company acquisitions.

Endo Pharmaceuticals – Yes, growth is free!•Recent M&A transactions calls for a buy-out price of 15x EBIT multiple for a pharma company. This suggest that Endo Pharma should be valued at least $28•We come up with a best-worst case scenarios. Our best case scenarios assume that the generic brands will not affect the profitability of Lidoderm: ENDP is worth $60. Our worse case scenarios assume zero growth, ENDP is worth $25. •It’s obvious that the market don’t like to pay for growth at this point. Buying the stock at these levels gives you growth for FREE!

Source: Yahoo! Finance

Price Tag: $2.47bln($21.21 a share)

Deswell Industries – Overview They’re in the business of making plastic parts – Boring! (ZzZz’s)• Headquarters is in Hong Kong and an independent contractor of manufacturer of

electronic products, components and subassemblies. • Business Model is simple: You bring your prototype and they build the product.

Caveat: Customers have no contract. The problem?• The couple of years have been terrible: technical recession of electronics industry. In

short, demand has declined. • Higher crude prices have dampened margins – increase cost of materials. Our variant view• We like management’s ultraconservatism: they save a lot of cash on rainy days. They

have cut down capital spending and did not declared any dividends. • Once the electronics sector begins to turn around, which we believe may be this year

or next, revenues will be at normal levels once again. (Happy days!)• A classic case of Heads I win, Tails I Don’t Lose: If they would close shop tomorrow,

most likely we would be getting around $3.75 a share on a (conservative basis).

Deswell Industries – Boring Stock, in a Boring industry

Source: Yahoo! Finance

Price Tag: $2.47bln($21.21 a share)

Price Tag: $66.86mln($4.13 a share)

•Why trade near liquidation price when you are not closing shop? Answer: Irrationality of the market. •Paying at these levels will give you the whole cash generating business for $6.94mln. Here’s some insane truth: That $6.94mln business earns at least $3-4mln a year. •This is definitely a no brainer. But what’s the catch? This is microcap stock, minimal shares traded in the market (translation: no big boys interest) and forgotten. •Well, what’s its worth? Okay. I’ll just say at no growth, its worth $14 a share. Sounds good to you? Well, Mr. Market gives this stock away and we’re taking advantage of his insanity.

Our Inner Scorecard

•We measure our performance by our own standards. We don’t plan to become slaves to the market; or chase high returns. Our number one priority is preservation of capital against inflation. We consider excess returns (i.e., beating the market) a bonus.

We’re all in this together…• We have no financial interests outside of Savio Capital. We will regularly place our own money in the Fund. While we cannot guarantee you returns, increase in our net worth is directly proportional to yours.