Peter Rabover, CFA

Portfolio Manager
Artko Capital LP

January 19, 2018

Dear Partner,

For the fourth calendar quarter of 2017, a partnership interest in Artko Capital LP returned 4.1% net of
fees. At the same time, an investment in the most comparable market indexes—Russell 2000, Russell
Microcap, and the S&P 500—gained 3.3%, 1.8%, and 6.6%, respectively. For the 12 months of calendar
2017, an interest in Artko Capital LP returned 11.0% net of fees, while investments in the most comparable
aforementioned market indexes were up 14.7%, 13.2%, and 21.8%, respectively. Our monthly results and
related footnotes are available in the table at the end of this letter. Our results this quarter came from
significant contributions from Spartan Motors, Leaf Group, Full House Resorts and Moneygram puts, while
pullbacks in Hudson Technologies and US Geothermal and hedging detracted from the overall
performance.
Inception Inception
1Q17 2Q17 3Q17 4Q17 1 year
7/1/2015 Annualized
Artko LP Net -3.5% 8.3% 1.9% 4.1% 11.0% 54.0% 18.8%
Russell 2000 Index 2.5% 2.5% 5.7% 3.3% 14.7% 26.9% 10.0%
Russell MicroCap Index 0.4% 3.8% 6.7% 1.8% 13.2% 21.9% 8.2%
S&P 500 Index 6.1% 3.1% 4.5% 6.6% 21.8% 36.7% 13.3%

On Finding Ideas

“Invest in what you know. Your investor's edge is not something you get from Wall Street experts. It's
something you already have. You can outperform the experts if you use your edge by investing in
companies or industries you already understand.” - Peter Lynch

We have somewhat disappointing news to report to you. Unfortunately, your portfolio manager does not
have a PhD in Electrical Engineering, Biology, or Computer Science. As such, we do not pretend to have a
competitive edge in understanding the business models and fundamentals of semiconductor and
biotechnology companies or crypto currencies, among many examples of complex securities. While we
may occasionally entertain a small, short-term, event-driven, special situation position in one of these
securities, where we would expect the risk reward proposition to be very favorable, you should not expect
us to undertake large concentrated positions in these industries.

Now for the better news. If you followed our investor letters over the last few years, you will not be
surprised to learn that your portfolio manager loves Twinkies (TWNKW) and tacos (TACOW); shopping at
high-quality grocery stores (VLGEA) and, as an inevitable result, needing larger size clothes (DXLG).
Occasionally, once we find ourselves in a Destination XL store one too many times, we’ll start looking on
Livestrong.com (LFGR) to find out how many calories that Twinkie actually has and try to get in shape
through yoga (GAIA) as well as hiking and trail running through some great national parks (VVI) with a
guilty pleasure side stop at a lakeside casino in Tahoe (FLL). As you may have noticed a large part of our
portfolio holdings uncoincidentally happen to be in uncomplicated industries and products where a lack
of a PhD does not preclude us from understanding the company or industry fundamentals. Having said
that, investing in things we can easily understand should only be viewed as a starting point of the research
process, not the result. The same Peter Lynch is quoted as saying, “I’ve never said, 'If you go to a mall, see
a Starbucks and say it's good coffee, you should call Fidelity brokerage and buy the stock.’” Understanding

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how a company makes money, its risks and competitive position, are all necessary parts of a thorough
due diligence process before committing to an investment.

It is with this spirit of investing in industries that we are familiar with that we initiated a 6% position within
our Core Portfolio in The Joint Corp. (JYNT), a franchise chain of 400 chiropractic clinics in the United
States. Your portfolio manager suffered a serious back ailment in 2017, and to our dismay, through
thorough research, found the domestic $100 billion back care industry completely lacking in
understanding causes of lower back pain, which is remarkably just named “Lower Back Pain (LBP)” in
modern medicine (think of brain cancer as having a “Head Hurt (HH)” moniker), as well as providing any
true effective treatments. Our domestic insurance industry skews the reimbursement incentives toward
low-efficacy pain-killing opioids and surgeries while the higher efficacy treatments, such as yoga,
chiropractic therapy, and physical therapy, tend to be left out of the reimbursement pools or are difficult
to approve. It is with this spirit of aiming to revolutionize the $15 billion chiropractic industry that JYNT
entered our radar.

What makes The Joint Chiropractic clinic franchises different from a regular chiropractic clinic model is
that it is an exclusively no insurance, no appointment business model. A representative customer pays an
average of $24 per visit for an adjustment (versus $74 for an insurance-based clinic appointment) with an
average of a 10-minute wait time. JYNTs consumer-centric approach is highly visible in locations that
resemble a spa versus a doctor’s office. A typical location has over 1,000 visits per month with over 75%
of revenues coming from a recurring subscription model. A location that has been in existence for over
four years is still able to report double-digit sales comp numbers showing the strong drawing power of
the concept. By not having to deal with insurance companies and paperwork, the employees at each
location are able to devote all of their time to clients, and the clinics average 4- and 5-star Yelp ratings for
the vast majority of the locations. Our own visits to a few sites bore out the same conclusions. What we
are seeing in the model is the nascent standardization of healthcare service delivery. It is similar to what
has been done very successfully with services such as oil changes, men’s haircuts, or fast food: Focus on
what the customers want and deliver it fast. While other alternative healthcare delivery options, such as
the “minute clinics” at drug store chains, involve a high level of random patient situations, JYNT’s focus
on solely chiropractic services make it a nascent category killer.

This $60 million market capitalization company generated close to $26 million in revenue in 2017 and is
expected to increase revenues at over 20% annual growth rate over the next few years, driven by
expansion in number of locations and continued strong same store growth off a young base. However,
what attracted us to this investment is the inherent operating leverage of the franchise business model.
While 2017 was a breakeven profitability year due to the slowdown in opening high initial loss company
owned clinics and a renewed focus on immediately accretive franchise locations we expect 60 to 70% of
every new revenue dollar to fall to the bottom line with a potential for $50 million in revenue and $15
million in Free Cash Flow by 2020. The potential for a valuation for a company with a growing $10-$15
million in Free Cash Flow in high double digits can be anywhere from $150 million to $300 million, or two
to four times today’s stock price. While our initial position is 6% of the portfolio, we will continue to add
if we see strong progress on the strategy and our thesis and get more comfortable with the performance
of a relatively new but reputable management team.

Following the theme of familiarity, this past quarter we initiated a 7% position in our former holding,
Village Supermarkets (VLGEA). As a reminder, Village is a collection of 29 Shoprite supermarkets in New
Jersey, New York, and Pennsylvania that is backed by its 13% ownership interest in the largest wholesale
food distributor in the North East United States, Wakefern, that allows the company to earn some of the

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highest returns in the non-specialty grocery space. While the company has faced competitive issues this
past year in two of its markets that have curtailed the company-wide same store sales growth, we believe
these issues are temporary and should lapse in the next year. In addition, Amazon (AMZN) announced a
pullback from certain areas of New Jersey, proving what the long-suffering backers of FreshDirect have
known for nearly two decades: Scaling online grocery is hard. In the meantime, the stock has come back
to $23 per share, from the $34-$36 highs when we sold it last year. As an additional benefit, the passage
of the recent tax bill added an extra recurring $0.25-$0.30 in earnings per share. We believe the company’s
significant ownership stake in Wakefern—which is worth more than the entire enterprise value of the
company—and a 4.4% dividend yield provide a significant margin of safety at current prices. We felt
comfortable getting back into the position in lieu of holding cash as a defensive holding with the
expectation that the stock would go back to $35-$40 in a multiple mean reversion strategy in the next few
years.

Enhanced Portfolio Additions

• Premier Exhibitions (PRXIQ) – We added a 2% position in the equity of a Premier Exhibitions Inc, the
owner and operator of popular exhibitions in the United States and internationally. The company is
currently in bankruptcy and its approximate $50 million equity value (versus $13 million in liabilities)
is backed by its ownership of incredibly valuable Titanic and Bodies exhibition assets. The company
owns over 5,500 pieces recovered from arguably the world’s most famous shipwreck, as well as
salvage and movie rights, which as recently as 2014 have been valued at $218 million/$23 per share
by a reputable collections house. The company has turned around operations and is now profitable,
generating approximately $2-3 million in annual EBITDA run rate. While the previous asset auction
was somewhat mismanaged and has now been cancelled, we believe the recent involvement of Apollo
on the equity committee and an increase in the number of global billionaires who may be interested
in the vanity purchase of these assets increases the probability that significant value may be realized
in the next 12 to 24 months. We view this investment as an option with very favorable risk reward
probabilities, where our downside scenario is $3-$4 per share (from our $5.30 purchase price levels)
valued as a straight cash flow asset at low double-digit multiples versus a $25-$45 per share upside
should the assets be sold based on their value as a timeless collectible. A middle ground option could
potentially involve a sale at a price under $20, where a party may pay a price (above $5.30) that would
make it advantageous to donate the assets to a museum or a nonprofit in return for a valuable Internal
Revenue Service (IRS) tax shield.

• Skyline Corp (SKY) – We added a 2% position in this sub-$100 million market capitalization producer
of manufactured homes in the last quarter of 2017. Our original thesis behind this investment was
that there is pent-up industry demand for manufactured homes in the United States, buoyed by low
interest rates; a significant product upgrade that is leaving behind the stigma of “trailer home living”;
and new demand from Federal Emergency Management Agency (FEMA) post a devastating hurricane
season. The company had significant insider ownership, a clean balance sheet, and was trading below
10x our forecasted forward earnings, which we expected to double within next few years. In early
January 2018, Skyline announced a reverse merger with Champion Enterprises, the second largest
factory home player in the United States behind Warrant Buffett’s Clayton Enterprises. The stock
rallied 70% on the news of the creation of the largest publicly traded manufactured home player in
the United States with the implied valuation of over $1 billion. The details of the deal, specifically
financials for Champion and the size of the Skyline special dividend to existing shareholders, are still
unknown at this time so we are keeping a close eye on this position. We believe it’s likely that

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 significant value will be realized from this transaction, so we are staying with our current position size
while continuing to conduct due diligence.

Other Portfolio Updates

• US Geothermal (HTM) – Despite falling close to 20% in 4Q17 (and rebounding in 1Q18), US
Geothermal remains one of our highest conviction names in the portfolio and we continue to add to
the position whenever the stock falls to extreme price levels on general volatility which comes with
investing in illiquid microcap companies. As a reminder, HTM is a $70 million market capitalization
company consisting of a portfolio of three geothermal plants in Idaho, Nevada, and Oregon. Each
plant has a 20- to 25- year Power Purchase Agreement (PPA) contracts generating a stable and
growing $9 million to $10 million a year Free Cash Flow to the parent. In addition, the 42-megawatt
(MW) company has over $100 million in Net Operating Loss (NOLs) tax carryforwards. HTM also has
35 MWs of brand new binary plant equipment, opportunistically purchased at a 95% discount in 2015,
whose replacement value could be as high as $4 to $5 million per MW. In other words, our margin of
safety in US Geothermal is very high, backed by its assets and cash flow. We believe the company
fields continuous buyout offers for the market value of its current assets at today’s $4.00 per share,
stock price.

On the other hand, the real value in this 10% Core Portfolio holding lies in the development of its two
35+ MW projects in California and Nevada. The addition of each project could almost double the
producing power and cash flow for the company. 2017 was a frustrating year in that the progress on
acquiring a PPA to move the projects forward was slow due to a low volume of Requests For Proposal
(RFPs) from potential utility and corporate customers as well as competition from solar generation.
We believe 2018 could be a good year for HTM getting at least one PPA for its projects given the
increased RFP volume as well as a renewed focus on grid reliability given the predictability of base
load geothermal power versus the intermittent power production of solar. We continue to favor low
downside, high upside optionality companies such as US Geothermal that have little correlation with
overall market performance in our portfolio and will opportunistically add to our position on price
dips.

• Our other significant portfolio performer last quarter was our ~1% investment in the put options of
Moneygram (MGI). where our long time familiarity with the company and the industry allowed us to
handicap the odds of their deal with Ant Financial not getting approved by Committee on Foreign
Investment in United Sates (CFIUS), as well as a late year rally in the stocks of Leaf Group (LFGR) and
Full House Resorts (FLL) on news of deals within their industries and general improvements in
operations. We’ve also made profitable intra quarter adds and reductions in our Destination XL (DXLG)
investment which remains a 6% holding in our Core Portfolio today.

Market Outlook and Commentary

On March 2, 2000, eight days before NASDAQ reached a peak it wouldn’t reach again until 17 years later,
Palm Inc, a company with $565 million and $30 million in previous 12-month revenues and net income
made its stock market debut at $38 per share, quickly reaching $165 before settling down at $95, at a
valuation of $53.3 billion or almost 100x revenues and 1780x its earnings. At market close on that day,
Palm, a maker of handheld, personal digital assistant (PDA) devices, was valued higher than McDonalds
and Chevron. A little over a year later, Palm was trading at $6.50, down 90% and eventually sold to Hewlett
Packard in 2010, at $5.70 a share, or $1.2 billion, before eventually being shut down in 2011.

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On Jan. 9, 2018, our favorite mistake, Kodak, a $100 million market capitalization company earlier that
morning and on the verge of breaking its debt covenants and declaring a second bankruptcy, announced
a creation of KodakCoin, joining the ranks of other bubble mania companies such as Overstock and Long
Island Ice Tea Corp., entering the digital currency space. Its stock soared almost 300% in two days with
the market completely oblivious to almost a billion dollars in debt and pension obligations, a quickly
declining core business, and continuous negative cash flows. Going back to our earlier admission of not
having a competitive edge in understanding complex technological innovations, we didn’t have to be
rocket scientists to identify the same manic investor and market behavior that eventually ended in
disaster for investors in the 2000-2001 and 2007-2008 time periods.

Perhaps our favorite headline so far in the new year has been “As Stocks Reach New Highs, Investors
Abandon Hedges” in the Wall Street Journal, on Jan. 8. Market complacency, as measured by the CBOE
Volatility Index, VIX, at all-time lows, has set in. The fear of missing out, FOMO, is real, and no one wants
to be left behind. No one except us it seems.

We can’t predict the market, but we can continue to ensure that our focus on preserving your capital
remains a priority. With market complacency high and volatility low comes the gift of cheap market
insurance. While in the 2nd half of 2017 our portfolio was 40% short the Russell 2000 index (IWM) and our
cash balances were close to 20%, with the additions of JYNT, VLGEA, SKY and PRXIQ whose valuations and
performance have less correlation with the general market, we decided to harvest our losses on the IWM
hedges and took advantage of very low put prices to insure a 100% of our portfolio against a 25% fall in
the market for most of this year at a cost of less than a few hundred basis points. While these defensive
investments may cause us to continue to underperform our benchmarks in the short term should this bull
market continue its upward march, we believe taking a longer term view in protecting partnership capital
will result in higher compounded returns to you over a full market cycle.

Partnership Updates

We welcomed two new partners to the partnership this quarter, bringing our total to 25 at the end of
December. We are excited about the continued partnership growth and are planning our annual partner
event on Feb. 12 in San Francisco. You should have received an invitation, but please reach out if you have
not. Finally, you should begin to receive communication from our audit firm M.D. Hall & Company in the
coming months as we prepare for our year-end 2017 audit.

Next Fund Opening

Our next partnership openings will be Feb. 1, 2018, and March 1, 2018. Please reach out for updated
offering documents and presentations at info@artkocapital.com or 415.531.2699

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 Appendix: Performance Statistics Table

Russell MicroCap
Artko LP Gross Artko LP Net Russell 2000 Index S&P 500 Index
Index

Jul-15 2.1% 1.7% -1.2% -3.2% 2.1%

Aug-15 -3.7% -3.7% -6.3% -5.4% -6.0%
Sep-15 1.6% 1.4% -4.9% -5.8% -2.5%
Oct-15 1.7% 1.5% 5.6% 5.4% 8.4%
Nov-15 4.1% 3.3% 3.3% 3.8% 0.3%
Dec-15 0.2% 0.0% -5.0% -5.2% -1.6%
Jan-16 -5.2% -5.4% -8.8% -10.4% -5.0%
Feb-16 0.9% 0.8% 0.0% -1.5% -0.1%
Mar-16 8.9% 7.5% 8.0% 7.1% 6.8%
Apr-16 1.4% 1.1% 1.6% 3.2% 0.4%
May-16 3.5% 2.7% 2.3% 1.3% 1.8%
Jun-16 2.3% 1.8% -0.1% -0.6% 0.3%
Jul-16 12.4% 10.0% 6.0% 5.2% 3.7%
Aug-16 0.5% 0.4% 1.6% 2.6% 0.1%
Sep-16 0.1% 0.1% 1.1% 2.9% 0.0%
Oct-16 -1.5% -1.3% -4.8% -5.7% -1.8%
Nov-16 13.5% 11.0% 11.2% 11.6% 3.7%
Dec-16 1.8% 1.4% 2.8% 4.6% 2.0%
Jan-17 -2.2% -2.3% 1.5% 0.4% 1.9%
Feb-17 2.3% 2.2% 1.9% 1.0% 4.0%
Mar-17 -3.4% -3.5% 0.1% 0.9% 0.1%
Apr-17 2.7% 2.7% 1.1% 1.0% 1.0%
May-17 0.1% 0.1% 2.1% 2.4% 1.4%
Jun-17 6.6% 5.4% 3.5% 5.2% 0.6%
Jul-17 3.4% 2.7% 0.7% -0.6% 2.1%
Aug-17 -2.0% -1.7% -0.5% -1.4% 0.3%
Sep-17 1.1% 0.9% 6.2% 8.2% 2.1%
Oct-17 1.2% 0.9% 0.9% -0.2% 2.3%
Nov-17 1.2% 0.9% 2.9% 2.5% 3.1%
Dec-17 2.8% 2.3% -0.4% -0.5% 1.1%

Russell MicroCap
Artko LP Gross Artko LP Net Russell 2000 Index S&P 500 Index
Index
YTD 14.6% 11.0% 14.7% 13.2% 21.8%

1 Year 14.6% 11.0% 14.7% 13.2% 21.8%

Inception 7/1/2015 73.9% 54.0% 26.9% 21.9% 36.7%
Inception Annualized 24.8% 18.8% 10.0% 8.2% 13.3%

Monthly Average 1.9% 1.5% 1.1% 1.0% 1.1%

Monthly St Deviation 4.1% 3.5% 4.1% 4.6% 2.8%
Correlation w Net - 1.00 0.76 0.69 0.62

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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 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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