Peter Rabover, CFA

Portfolio Manager
Artko Capital LP

October 25, 2018

Dear Partner,

For the third calendar quarter of 2018, an average partnership interest in Artko Capital LP returned 0.5%
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 3.6%, 0.8%, and 7.6%, respectively. For first nine months of
calendar 2018, an average partnership interest in Artko Capital LP returned 11.8% net of fees, while
investments in the most comparable aforementioned market indexes were up 11.5%, 11.6%, and 10.2%,
respectively. Our monthly results and related footnotes are available in the table at the end of this letter.
Our results this quarter came from contributions from Tesla puts and Research Solutions. Pullbacks in Gaia
and Skyline Champion detracted from the overall performance.
Inception Inception
4Q17 1Q18 2Q18 3Q18 YTD 1 year 3 year
7/1/2015 Annualized
Artko LP Net 4.1% 5.5% 5.5% 0.5% 11.8% 16.4% 19.8% 72.1% 18.2%
Russell 2000 Index 3.3% -0.1% 7.8% 3.6% 11.5% 15.2% 17.1% 41.7% 11.3%
Russell MicroCap Index 1.8% 0.7% 10.0% 0.8% 11.6% 13.6% 16.4% 36.1% 9.9%
S&P 500 Index 6.6% -0.8% 3.3% 7.6% 10.2% 17.9% 17.3% 51.1% 13.5%

On Portfolio Management and Tesla

“The farther backward you can look, the father forward you can see” – Winston Churchill

It should not come as a shock that there are two inherent truths in managing our partnership’s portfolio:
First, investing is risky - especially in micro-cap public equities and special situation securities. Second, we
are often wrong. However, as the saying goes, this is a feature not a bug. Recognizing that we are fallible
and that real capital impairment risk exists leads our investment decision process to think in probabilities
of outcomes rather than decisive proclamations of certainties in the future performance of our
investments. Our goal, in addition to providing you a “hard to index” product that is complimentary to
the larger passive index universe, is to find the best upside for the risks we take on. In order to achieve
this goal, we focus on two metrics: First, our estimate of potential losses if we are wrong in our thesis and
second, the ratio of the potential upside in these investments to the downside - the conversely named
risk-reward ratio.

Our portfolio is generally split up into two buckets: the Core Value portfolio, which is on average
approximately 80% of assets and the Enhanced Value portfolio, which is usually a 20% allocation. This is
not a set metric but one that we have found provides us with the best way of allocating and thinking about
our investments. While the focus of the Core Value portfolio is on low downside and high uncertainty
stocks where we feel comfortable taking significant positions (up to 10% of the portfolio), the Enhanced
Value portfolio makes smaller, riskier investments that can face significant losses but also provide a much
higher upside potential, resulting in high risk-reward ratios. It is with these two risk management tools in
mind that we try to construct an optimal portfolio focusing on the lowest potential downside and the best
risk-reward ratio, using our estimates for best and worst scenarios. In other words, for every dollar of
potential downside risk we take on we expect to be handsomely rewarded in the intermediate future. It
should be noted that we rarely reach these scenarios; the targets are dynamic and we often try to limit
our losses prior to reaching the worst-case stock prices. Conversely, by getting more comfortable with
some of the names in our Enhanced Value portfolio we have often elevated them to the Core Value

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portfolio, such as our investments in Skyline Champion and Research Solutions. Since we have started to
keep track of this statistic it has oscillated between five to nine times for the overall unhedged portfolio.
A lower bound usually tells us that we need to re-allocate capital and find better ideas while the upper
bound tells us to sit and be patient. It is this mindset that helps us to transition from an individual security
analysis role to one of a portfolio manager where the position, size, and estimates of risk are often much
more important decisions than, say, determining the appropriate terminal value multiple for a microcap
grocery store chain.

It is with this allocation strategy and a target risk-reward ratio in mind that we approach our view of short
selling. Short selling as part of an investment strategy can provide portfolio diversification benefits;
however, for us, it rarely provides an acceptable risk-reward ratio in our concentrated and unleveraged
portfolio. While we feel comfortable with our experience in the markets to continuously find significantly
mispriced long securities in the spaces in which we play, being a great short seller requires a unique set
of skills and vision that, frankly, we are not equipped to do well on a mandated consistent basis. We feel
comfortable admitting here that investors like Jim Chanos, Marc Cohodes, and John Hempton - who we
admire greatly - are much better short sellers than we could ever aspire to become. While this way of
thinking does not prevent us from taking short positions, our conviction levels must have a much higher
threshold in order for us to take on these sorts of investments. In the more than three years that we have
managed our partnership’s capital we have taken two small positions (under 2% of portfolio) in put
options of companies we have followed for many years and have had significant confidence, experience,
and visibility on the particular events that needed to happen for us to realize our expected returns. We
are happy to report that both of them were profitable investments.

Which finally brings us to the discussion in our investment in the put options of Tesla and how they have
fit into our portfolio. There are plenty of things to say about Mr. Musk and his public markets behavior
but in the end our bet on Tesla puts was one on a bad balance sheet that was stretched beyond reasonable
safe credit measures on most capitalization ratios. Furthermore, it had a strong probability of needing
additional and expensive capital and a not insignificant probability of insolvency or bankruptcy which was
not being priced in by the market. Our initial investment in longer term Tesla puts in the 2nd quarter of
2018 was approximately 2% of capital and we felt our risk-reward was in the appropriate range for us to
take the risk of capital losses. With Mr. Musk’s “funding secured” tweet which broke all the rules of public
markets disclosure we were forced to realize losses in the face of uncertainty of the announced, but
ultimately fake, deal. With the renewed focus on the balance sheet and the realization that the deal was
a sham, we have re-entered the position with an initial 3% of capital - an admittedly big weight in the
portfolio - into more intermediate term, at-the-money, put positions which produced almost a 100%
return at the end of the quarter as word of Mr. Musk’s regulatory troubles with the SEC hit the news wires.
We have pared our position in the current quarter and, heading into the 3rd quarter October 2018 results,
even hedged our position with some short-term calls. The calls contributed to positive performance in the
current quarter as Tesla delivered a strong and profitable quarter with a sound balance sheet and will live
to fight its numerous critics another day. As of the writing of this letter we have exited our overall
investment with modest profits and although this short selling experience was, again, lucrative for the
partnership we are unlikely to actively short on a regular basis. In the end, we are likely to see Mr. Musk
take his rightful place in history books along side his counterparts Samuel Insull, Jeffrey Skilling, and Dick
Fuld as his conduct in the public markets is a destabilizing force and sets a dangerous precedent for the
behavior of public company executives which will likely make our job of identifying low risk investments
prohibitively more difficult.

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Enhanced Portfolio Sales

• Hostess Brands $5.75 October 2020 Warrants (TWNKW) – We have been sellers of our position in the
warrants of Hostess Brands throughout the last year at prices ranging from above $2.00 to a low of
$1.20 and finally sold out of the rest of our position, which down to 1% of the portfolio, at the end of
the third quarter. This has been a successful investment for us, and we were able to realize most of
the gains at higher, above $2.00 prices, and took a modest loss on the last sliver. Hostess came
charging hard out of the gate since coming back to market; picking up lost market share and driving
revenues through introduction of new products. However, with the recent senior management
change, a competitive environment and a significantly stretched balance sheet, the turnaround story
seems to have played out and the company is no longer as undervalued relative to its competitors,
especially in light of lackluster growth in the next few years. It is still an interesting story and we might
be interested in coming back into the warrants in the future but, given the heavy index ownership and
major Wall Street coverage, we believe at the present time our capital is better served by being
committed to other, less covered opportunities.

Other Portfolio Updates

• Research Solutions (RSSS) – Our 9% of portfolio holding, which we have increased as a position size
from its original 2%, in the nanocap distributor of scientific publications and a provider of a unique
science publication management software platform has continued to perform strongly returning 20%
for the quarter and close to 140% over the last year. The company continues to gain traction with its
Article Galaxy software, introducing an upgraded version in September, as well as rolling out various
pricing plans and launching new sales channels which we expect to drive significant revenue growth
for the product in the future. The Platform’s business segment, which includes Article Galaxy, grew
revenues over 85% for the year with a $2.1mm revenue run rate. While revenues account for only
6.5% of the overall company, with 80% gross margins, the gross profit accounts for 20% of the
company’s overall gross profits. We expect that in the next three years the platform’s business will
continue to grow at almost triple digit growth rates off a low base and for the company to begin to
generate significant Free Cash Flow, at $5 to $10mm by 2021, and $20mm to $30mm by 2023. With
the current Enterprise Value at only $50mm we believe this investment has many years of continued
high returns ahead as the market begins to appreciate the true cash flow generating power and very
sticky recurring revenues. The current illiquidity of the stock continues to be prohibitive for many
institutional investors, however, the company has applied to be uplisted on the Nasdaq stock
exchange from its current over-the-counter trading status, which should be a positive for the stock.
We have been patiently adding to our position on a regular basis for the last year as our diversified
partner base and an average capital commitment of four years allows us to be patient and forward-
looking with this investment.

Market Outlook and Portfolio Commentary

While on the surface our portfolio and the markets looked calm during the third quarter, the reality has
been anything but and we have been witnessing a very tough slog for the microcaps throughout the year.
While the S&P 500 and Russell 2000 returned 7.6% and 3.6% for the quarter and with the Russell 2000 up
11.5% year to date through the end of September, the smaller cap, under $500mm, segment of the index
has struggled significantly with median return at -2% through the end of the quarter. We have been seeing
a large number of microcaps trading meaningfully off their 52-week highs and our portfolio has not been
immune, with the median position in our Core Value portfolio off it 52-week high by 12% at the end of
September. Additionally, 50% of our portfolio, with a median market cap of around $200mm, was down

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over 20% off its recent highs while continuing to deliver very strong fundamental results. The rotation
away from riskier microcaps into safer bonds and large cap securities has been mostly unnoticed by the
market as a warning shot for the current, October 2018, sell off. As of the writing of this letter, the Russell
2000 and Russell Microcap are trading down almost 14% from highs a few months ago and down almost
12% for the month. Our hedges have performed well for us during these turbulent times and we’re down
in mid-single digits; using the cash generated by the Russell 2000 puts to reset our hedges and add to our
highest conviction positions at much lower prices.

We continue to monitor rising interest rates and the shape of the yield curve as predictors for future
economic and market performance, which, as seen in the chart below have had excellent success in
forecasting an economic slowdown, though not the timing. While the economy is currently delivering
strong growth we believe that most of that growth has already been priced into equity valuations and we
are at the point where the economy’s choice is not going from hot to hotter but from hot to mediocre.
The domestic economy is not overleveraged as it was during the last recession, but with interest rates still
relatively low and fiscal policy seemingly out of ammo, the smaller arsenal of macro and fiscal tools to
deal with a slowdown creates a risk of a less severe but prolonged downturn scenario rather than a sharp
one. On the market side we continue to worry that a much broader passive index ownership and a rise
of quantitative strategies, coupled with a significantly smaller number of stocks than in the past, could
exacerbate market sell offs. A vast majority of our portfolio is not any indexes, and 40%/50% of our
holdings are in sub $100mm/$200mm market cap companies which are generally too small for index
ownership. However, no matter how much we would like for it not to be we are still exposed to broader
market moves and we will continue to use small cap index hedges to mitigate those risks and focus on
capital preservation to be able to take advantage of sell off opportunities to re-invest in our portfolio and
our watchlist of companies.

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Partnership Updates

We welcomed two new partners to the partnership this quarter, bringing our total to 34 at the end of
September. We also welcomed Alan Van Pelt to Artko Capital as a Research Analyst. Alan comes to us with
a diverse background in tech, strategy consulting, and new product development. He has degrees from
both Stanford and Berkeley, where he now teaches classes on innovation and consumer research. His
unique background is a fantastic compliment to our “old school’ investment process and he has already
contributed significantly to managing our portfolio and new idea pipeline. We look forward to sharing
Alan’s investment research with you in the coming months. Finally, as is annual tradition we will be having
our partnership dinner in February 2019 in San Francisco. Last year’s event was well attended and very
fun and we look forward to seeing all of you again this year. Please be on the lookout for invitations in the
coming months. We are excited about the continued growth in partners and assets under management
and as always are thankful for your business.

Next Fund Opening

Our next partnership openings will be November 1, 2018, and December 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% 1.8% 2.7% 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% 0.4% -1.5% 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% -2.0% -2.3% 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% -1.3% -0.8% 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%
Jan-18 5.9% 4.8% 2.6% 2.5% 5.7%
Feb-18 -2.6% -2.2% -3.9% -3.2% -3.7%
Mar-18 3.6% 2.9% 1.3% 1.5% -2.5%
Apr-18 0.6% 0.4% 0.9% 1.3% 0.4%
May-18 5.9% 4.8% 6.1% 7.2% 2.4%
Jun-18 0.4% 0.2% 0.7% 1.3% 0.6%
Jul-18 -1.1% -1.0% 1.7% -0.1% 3.7%
Aug-18 -0.7% -0.7% 4.3% 4.3% 3.3%
Sep-18 2.6% 2.1% -2.4% -3.3% 0.5%

Russell MicroCap
Artko LP Gross Artko LP Net Russell 2000 Index S&P 500 Index
Index
YTD 15.4% 11.8% 11.5% 11.6% 10.2%

1 Year 21.2% 16.4% 15.2% 13.6% 17.9%

3 Year 26.1% 19.8% 17.1% 16.4% 17.3%

Inception 7/1/2015 100.6% 72.1% 41.7% 36.1% 51.1%

Inception Annualized 23.9% 18.2% 11.3% 9.9% 13.5%

Monthly Average 1.9% 1.4% 1.0% 0.9% 1.1%

Monthly St Deviation 3.8% 3.3% 3.9% 4.3% 2.8%

Correlation w Net - 1.00 0.74 0.68 0.55

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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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