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Introduction

N.A.P.S. Financial, (Not a Ponzi Scheme) has a comprehensive investing approach that

places an emphasis upon small and mid-cap companies. The portfolio management teams

strategy is always evolving in order to capitalize on opportunities present in the current market.

With the market near its all-time high, large cap companies did not present the growth that the

team felt would be sufficient for its clients. There are two main parts to the overall investment

strategy that was implemented in this portfolio; the first part being a focus upon small and mid-

cap stocks for long term and day trades, and the second part being short term focus on short

sales. With this approach, the portfolio had significant risk because smaller companies are prone

to greater competition and generally higher volatility. What follows is a more in-depth

breakdown of the strategy for this portfolio.

Small and Mid-Cap Focus

The portfolio is mainly comprised of positions in small and mid-cap companies. As

mentioned previously, the portfolio management team felt that this would be the greatest

opportunity for growth with the current economic landscape. Technical analysis was utilized in

order to select the equities. Making sure the companies had a strong upward trend using support

and resistant lines was instrumental to the successes observed with this investing strategy. After

using a technical approach to find companies, a fundamental approach was used to evaluate the

financial strength of each company to ensure that they were financially stable. With this

fundamental analysis, the portfolio was able to avoid choosing companies with insufficient cash

flows and subpar balance sheets. However, this strategy alone was not providing the level of

returns necessary to satisfy the management team for the term allotted, which is why short

selling became an important aspect of the overall strategy.

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Short Selling

Short selling has proved to be an excellent tool for the portfolio after the team developed

a strategy to generating a substantial amount of capital with each trade. The strategy of finding

short selling opportunities is really quite simple. The first step is to locate an equity that is seeing

a rapid increase in price, numbers that are almost to good to be true. This kind of growth is

usually unstainable and so the team looked to capitalize on these moves. The next step is to see if

there are unusual levels of volume. If a stock has an average volume of fifty thousand and in one

day it is trading with a volume of three million, this is a red flag that something is up. Lastly, the

team tries to locate any news that could possibly justify the movement in the stock price. In some

cases such as a reverse split or a merger, a stock price can increase by well over one hundred

percent, but often times there is not enough news to justify the increase in price, which would

become an indicator for the team that the stock is a candidate for a short position. If a stock is

meeting this criteria, along with its financials being poor, then the equity is shortable.

Overview of Investments and Performance

Utilizing the strategies listed, the portfolio held a total of twenty four different companies

and short sold seven companies at one point during September 19th - November 18th. As of the

18th of November, the portfolio held eleven different equites. The breakdown of all the stocks

that were owned or shorted is located at the end of this section. The portfolio was constructed in

such a way that it would be diversified across a number of different industries and sectors to help

mitigate risk. With this in mind, the management team still needed to be conscious of the current

economic conditions when making decisions. However, the portfolio did see some unforeseen

events which caused its poor performance. From September 19th through November 18th, the

portfolio had a holding period return of 15.37% and a loss of $-460,970.32. When annualized,
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the EAR of the portfolio was 61.87%. During this same period to show performance compared

to the market, the S&P 500 had a holding period return of 1.33% and an EAR of 7.93%. It is

quite obvious that these returns are not as expected. The portfolio was actually recognizing

positive retunes until one position eliminated all of the returns. This position will be discussed in

the Major Holdings Section of this paper.

Macroeconomic Conditions

Prior to discussing the major holdings of the portfolio, it is important to have an

understanding of what economic conditions were influencing the decisions made by N.A.P.S.

Financial. From September 19th through November 18th, quite a bit of news and events played a

role in influencing the outcome and performance of the portfolio and the market in general. The

Untied States was going through an election process unlike any other ever seen before. Global

markets, oil prices, and interest rates also played their role in the overall performance of the

portfolio for this time period due to their uncertainty and instability throughout the course of the

election.

Interest Rates

Interest rates are one of the economic conditions that will always have an impact on the

overall economy. In the United States, the Federal Reserve has been threatening to raise interest

rates. Since the financial crisis of 2008, the fed funds rate has been between 0-.25%. Not until

recently was the rate raised to .5%. With this interest rate being so low, banks have been able to

borrow capital at low prices. When interest rates are low the government is trying to encourage

investment in the economy. However, many investors are looking for short term gains and will

speculate what direction the interest rate will go, causing uncertainty in the economy. The Fed
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Chair, Janet Yellen, has stated that interest rates will be increased in the near future. Typically,

when the Fed decides to raise rates, they feel that the economy is strong and recovering, so they

try to slow growth. However, the economy has not been recovering fully from the 2008 financial

crisis and low interest rates have not had the expected effect that they were supposed to in

restoring to economy back to previous growth rates. Just last year, the economy only grew by

just over 2%. The United States has not grown this slowly since the great depression era. Only

time will tell if the rate hike will have in impact on the portfolio.

Oil Prices

The current state of oil was first economic condition that caught the attention of the

management group in the early stages of the portfolio. When the portfolio was first opened,

OPEC was in the process of meeting to discuss future oil output levels. Facing competition from

the western oil producers, OPEC decided to cut production in order to drive the price of oil

upwards to generate more profit. One of the first trades in the portfolio was actually an oil

company named Chesapeake Energy Corporation (CHK). This company specialized in

exploration and development of oil and natural gas and operates 32,400 oil and natural gas wells.

The portfolio acquired 50,000 shares at a price of $6.94 per share. After the acquisition, the news

from OPEC was released and caused the company to reevaluate their management and remove

two of their board members. The culmination of these events drove the price down sharply. With

no news for relief in side, the position was closed at $6.50 in order to avoid more losses. The was

equal to a $22,000 loss or 6.34%.

After its position in Chesapeake Energy, the team learned that oil was not an area that

was going to see stable enough growth for the portfolio because of the uncertainty of the oil

market. Originally with oil prices being low, the team thought that the OPEC announcement
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would benefit the stock but it actually had the inverse affect due to the company's decision to

remove two of their board members. Since this trade, the portfolio team has avoided oil stocks

due to the uncertainty in this market. However, low oil prices do have a positive impact on other

areas of the economy, such as lowering costs on shipping or costs for other aspects of the

business.

Global Markets

Oil prices always have their impact on markets both at home and abroad, but there were

other forces that were impacting the global markets besides the price of oil. Most of the globe

was paying very close attention to the election in the United States because of the vast power the

United States has over the world economy. The outcome of this election would affect

international relations, trade deals, and economic partnerships with other countries. Also, the

European union was still adapting to Brexit and their entire system was on a teetertotter trying to

balance the union by attempting to discourage other countries from following great Briton's lead.

Global trade also affects the markets and this presidential election in the Untied States had a

particularly large impact on this area. Overall, the global markets were all waiting and watching

to see what would happen in the United States because this would determine how the rest of the

world would move forward.

United States Economy and the Election

The 2016 presidential election has had a profound affect on the economy in the united

states. One thing that investors like to look for in the market is certainty. One of the presidential

candidate's policies were more predictable and her economic plan was more clear while the other

had never been in a political office before which created unease in the minds of many people.
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Hillary Clinton was the candidate that Wall street was behind because of her sympathy for large

banks and it was felt that her actions would not differ much from president Obama. Donald

Trump was seen as someone who was going to shake up the establishment and cancel trade deals

which could hurt business. However, even with the odds against Trump, he prevailed and the

stock market has been rallying since. He plans on lowering taxes across the board and

renegotiating trade deals to work in The United States' favor. Election night painted a much

different story however, with Dow futures dropping over 700 points immediately after Donald

Trump was declared the winner. Even though none of the president elect's policies have been

implemented, the market is reacting in a way that bodes well for the economy both locally and

internationally.

Overall the economic conditions in the United States did not indicate growth for large cap

companies. From interest rates increasing to the election results, large companies do not present

the growth that small and mid cap companies do for the future. Small and mid cap companies

actually got a boost from the election results and the portfolio reinforced this popular trend. Even

though it proved to be great for the equities that were held in the portfolio, the team did see

success in short sales of less stable companies during this volatile time in the market. The

amount of uncertainty surrounding the election, interest rates, and oil prices, created a market

that made short sales very advantageous. Even with all of these positive signs for the portfolio,

one unforeseeable circumstance cause turmoil during the week of November 14th thorough the

18th.

Major Holdings

The management team worked hard to create a portfolio comprised of strong small and

mid cap companies that would see growth. Short selling was also an instrumental tool in the
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success of the portfolio. The following section will be dedicated to discussing the major holdings

in the portfolio and the impact that they had. The rational for choosing each stock was based off

of an evaluation of the economic conditions of the market place along with an intense technical

and fundamental analysis; the details of which will be elaborated on in depth for each major

holding, as each had a slightly different approach.

Small and Mid Cap Holdings

Chembio Diagnostics Inc (CEMI)

Company Overview

Chembio Diagnostics Inc. (CEMI) develops and manufactures rapid point of care

diagnostic tests to detect infectious diseases. Being part of the healthcare sector in the

diagnostics substances industry, CEMI faces no lack of competition. This company has created a

rapid point of care diagnostic test for HIV and other sexual transmitted diseases allowing

medical professionals to have access to valuable information about a patient in seconds. Not only

has this product seen great success, but in recent news the company has been awarded a grant to

create a new rapid point of care diagnostic test for the Zika Virus. If the company is able to

achieve this, not only will they be able to provide a innovative product for the market place, but

this test will be able to help save lives. The relevance of the spreading Zika Virus helped elevate

the price of the stock at first but as the seasons change and mosquito season ends, so does the

relevance of the Zika virus.

CEMI has a P/E ratio of 6.17 which may not appear to be spectacular, however

companies that engage in large amounts of research and development tend to have low P/E

ratios. The earnings per share for Chembio Diagnostics Inc. is -1.15. Once again, this is common
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for companies heavily involved in research and development and therefore was not troubling to

the team. The company has a beta of 1.36 indicating that it is a somewhat volatile stock. The

market capitalization of CEMI is $84.81 million, making this a small cap company. Reviewing

the financial statements will indicate that CEMI has seen net losses for the past two years of

about one million and two million dollars respectively. However, the company kept their

cashflow positive last year and with the recent grant for Zika research, the company will remain

solvent for years to come. Also, CEMI has been able to decrease their total liabilities from five

million to just over three million which accounts for part of the losses witnessed this past year.

Companies in this industry will not realize profits until their products pass required tests and

enter the market. The portfolio management team purchased this stock based off of the news

about the Zika research grant. Seeing the company's past success in this area lead the team to

believe that this company would see growth in the future.

Position

The portfolio's first acquisition was Chembio Diagnostics Inc. (CEMI). CEMI was

purchased 3 separate times, the first being on September 19th with a total of 10,000 shares

purchased at $7.25 per share equaling an investment of $72,500. The second purchase occurred

on the 22nd of September with another 10,000 shares at a cost of $7.19 per share equating to

$71,900. The final purchase of CEMI was on the seventh of October acquiring an additional

20,000 shares at a cost of $7.15, a total investment of $143,000. The total amount invested into

CEMI in those 3 trades came to $287,400.00 with an average cost of $7.19 per share based off of

40,000 shares. The portfolio's position into Chembio Diagnostic Inc. accounted for 9.58% of the

initial $3,000,000 used to open the portfolio.

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The common question that arises is why was this stock purchased multiple times. The

simple answer was to drive down costs and to allocate more funds towards a company that the

team believed strongly in. However, the portfolio realized a net loss of $-9,400.00 or 3.27% on

CEMI. This number was not to alarming to the management team because it is understood that it

will take time for the research to be completed. Once the test is completed, it will be able to be

sold not only in the United States but also in less developed nations that have problems with the

Zika Virus. This stock was bought with the intentions of it being held for the long term and the

team made the decision to place more capital into this company because of the potentially

astronomical impact that its product may have on the medical industry and thus on its stock

price. It is because of the volatility associated with this small cap company that the portfolio has

not seen the returns expected from CEMI but the loss is also not a complete surprise. It is

expected that CEMI will generate returns for the portfolio in the near future due to the necessity

of the Zika rapid point of care test. The company would not have received the grant if they were

not expected to deliver on their product when it is ready.

Competition

Chembio Diagnostics Inc. Is a very small player within the diagnostics substances

industry of the health care sector. With a market capitalization of only $84.81 million, CEMI is

one of the smallest publicly traded diagnostics companies. However, just because they are small

does not mean they are not a great company. Having created innovative products in the past that

had great success in changing the industry, CEMI does have the ability to do this again with it's

Zika test that it is currently developing. Within the industry that CEMI is competing, its largest

competitors are Thermo Fisher Scientific with a market cap of $55.35 billion and Quintiles IMS

Holdings with a market cap of $18.91 billion. It is difficult to gain market share in this industry
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because of the size of the companies that CEMI is competing against. Larger companies are able

to allocate more funds towards research and development than the smaller ones. However, these

companies all start in a place similar to Chembio Diagnostic Inc. at some point, and all it takes is

one product to propel them in the market and gain more market share.

CEMI has the know-how and the funding to develop a Zika test that will be able to make

them a larger competitor in its industry. Specializing in rapid point of care tests is a very niche

marketing, making CEMI an inelastic brand which does work in its favor when competing in this

market space. The main reason why the portfolio was invested in CEMI was because of the

company's history and the news related to the grant. There was not a great amount of weight

placed upon the financial ratios for this stock because the industry giants skew the data and

CEMI is in the research and development stage of its next big product. Also, the current

economic conditions as well as the fear of the spreading Zika virus made this a more

advantageous investment. This made Chembio Diagnostic Inc stand out against its competitors

and a company that the management team put its trust in to generate wealth for its clients in the

long term.

Crispr Therapeutics (NASDAQ:CRSP)

Company Overview

Crispr is a genetic engineering company which recently had its initial public offering on

October 19th. This company caught the team's eyes because it was already looking into the new

groundbreaking genetic engineering technology known as the Crispr/CAS9 system. This

technology has been underway for several years and recently hit the mainstream upon its

completion. Previously with the genetic engineering process, there was much uncertainty and it
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relied heavily on trial and error, which made the process extremely costly and time consuming.

An organism was hit with radiation or RNA snippets were injected into the cell and then the

changes were noted, for better or worse, and adjustments were made accordingly. The new

Crispr/CAS9 technology is referred to as the "Microsoft Word" of genetic engineering because

uses a protein called CAS9 (discovered in a bacterias antivirus system) to go into a DNA strand

and cut out and replace whichever base pairs they want. Although Crispr Therapeutics isn't the

first public company using this technology, they do have the advantage of having the hallmark

name of the technology and therefor stand out more to prospective investors looking for

investment opportunities in this technology specifically .

The financials of CRSP, did not heavily impact the teams decision on the grounds that

not only is it an IPO, so minimal financial details were known at the time of the decision, but

also because the technology is still new and often times in research/development companies, it

can take a while before a company becomes profitable. The team invested with the knowledge of

how groundbreaking the technology is and knowledge that even though it may not be profitable

in the immediate term, it will certainly be important in the long term, and the team felt that the

stocks growth would reflect that. With that said, some financial information was known about

Crispr Therapeutics and is worth noting because of how it compares to the competition. The P/E

ratio for Crispr Therapeutics is currently P/E -2.26, EPS is -9.64, 52 week range $13.75 - $23.97

and market cap 805.13 million. The beta was not an influencing factor in the team's decision as it

is an IPO so beta is unknown. Because the stock has only been listed for just over a month, there

is still is no beta available, however it is likely quite high at this point, considering its range in

this 1-2-month period is $13.75 - $23.97. These figures will become relevant in the competition

sub-section of this analysis.

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Position

Crispr Therapeutic's stock had its initial public offering on Oct 19th for $14 per share. On

this date, the team closed its position in ATEN to free up capital and then proceeded to purchase

14,300 shares at its IPO price of $14 per share, for a total investment of $200,200. The portfolio's

position into Crispr Therapeutics accounted for 6.67% of the initial $3,000,000 used to open the

portfolio.

As the team knew the potential volatility of IPO stocks, the goal was not to hold onto

CRSP for too long. With this in mind, a couple weeks later on Nov 2nd, the team closed out its

position in CRSP at $16.83 per share, netting the portfolio a 20.21% gain, or $40,469. The stock

price is currently moving around $20 per share, so one may argue that the team should have held

longer. However, the team still feels it made the correct decision to sell due to the

unpredictability of IPO's in general and due to the fact that Crispr Therapeutics technically has

no real marketable product currently, and will likely not become profitable for some time. The

current stock price seems to reflects solely the speculation of investors as to how beneficial the

technology/future products will be moving forward. For the team, that speculation created a good

basis for a short-term position, but was not a stable enough reason for the team to hold its

position unless it was going to be for a very long term.

Competition

Because this technology is so new, there are only 2 publicly traded companies

exclusively using this technology, both of which also went public recently, within a year of

Crispr's IPO. Because of this, there is not a lot of financial data available on the companies,

however, the data available is worth noting in comparison to CRSP's. The first of CRSP's direct
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competition is Intellia Therapeutics (NASDAQ:NTLA). This company had its IPO may 6th

2016. Its 52-week range sits at 11.86 - 30.40, its P/E at -8.30 and its EPS at -1.9. It has a Market

Cap of 566.93 million. The next is Editas Medicine (NASDAQ:EDIT). Editas had its IPO on Feb

3rd 2016. Its 52-week range is 12.43 - 43.99, EPS is -2.93, P/E is -4.87 and Market cap is

508.51 million. Some key takeaways from these numbers is that Crisper Therapeutics currently

has the highest Market cap by quite a wide margin, about 60% higher than both competing

companies. It has the lowest EPS which can be attributed to it being the newer of the 3

companies, but still has the highest P/E ratio of its competition.

Although the CRSP currently holds some financial leads over its completion which is

certainly a good sign, not all of that was known at the time of the teams decision and, as

mentioned before, it was not a major influencing factor in the decision for reasons listed prior.

The team chose Crispr Therapeutics over its completion because of the news surrounding the

company and market sentiment in regards to its IPO. The team also feels that the company has a

slight edge over its competition because of the fact that it has the hallmark name of the actual

technology in the name of its company, so investors who are looking into investing in the Crispr

technology will be drawn more to Crispr therapeutics for that reason.

Meta Financial Group (CASH)

Company Overview

Leading up to the election, the market was volatile and people were expecting Clinton to

win. Despite political preference the team felt that the portfolio needed to be election proof. Not

only was minimizing the margin purchases a priority, but also selling stocks that could make a

turn for the worse. On November 2nd 14,300 shares of Crispr Therapeutics AG (CRSP) were
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sold for $16.83 for a profit of $40,469. Since Crispr was an IPO, the future of the stock was

uncertain, especially with the upcoming election. As the team was looking into reallocating the

money in an industry that was more likely to do well post-election despite the outcome, the

financial industry seemed to be the most secure. After making this decision on November 4th the

team sold 13,000 shares of Supernus Pharmaceuticals (SUPN) at $17.80 for a loss of $77,350

After looking at many different financial companies Meta Financial Group (CASH), a unitary

savings and loan holding company, stood out from all of the others. Meta Financial Group

(CASH) was the team's largest holding.

Position

Meta Financial Group is the holding company of Metabank and its subsidiaries. The

companys main subsidiary, Metabank, is bank that offers different financial services. Metabank

offers services such as online banking for individuals and businesses. For individuals they also

offer saving/CDs accounts, mortgages, and home equity lines. Along with many other banks,

Metabank offers credit cards and debit cards with MasterCard. These credit cards are offered for

individuals and businesses. Since Metabank is located in the Mid-West they have do a lot of

business with farms. They offer specific loans for farms such as real estate loans, equipment

loans, and livestock loans. Metabank is also known for their many methods of moving money

around. Going beyond simple account transfers, Metabank puts an emphasis on sharing money

through different outlets. Looking over the different publicly traded companies, the team felt that

Meta Financial had strong assets that would drive more individuals to do business with them.

Meta Financial Groups financial ratios support the teams conclusion that they were a

strong investment at the time. Meta Financial Groups beta is 0.84 which shows that CASH is

not a very volatile stock. It has a strong P/E 23.07 which is a very solid rating. The earning per
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share for CASH is 3.92. The market capitalization is 804.36 million which makes it a small cap

company so this investment does align with the companys goal. Over the past the three years,

total revenue has increased, while the cost of revenue has decreased. While assets have also

increased, liabilities have to. However, assets have increased by more than liabilities which is a

good sign.

Position

On November 4th, the team purchased 4,100 stocks at $72.30 a share. The purchase

totaled $296,440 including the $10 commission fee. This purchase was 9.88% or the portfolios

value which is good for diversification. The team only purchased this stock because it was

purchased at a low price and 9.88% was a sufficient portion of the portfolio to have invested in

one stock. The team has not closed its position because it feels that CASH is a strong company.

On November 18th, CASH closed at $90.90 a share, which is $18.60 more a share than when the

team purchased it. CASH had unrealized gain of $76,260 or 25.7%.

Competition
Meta Financial Group has many competitors located all around the nation. Meta Financial

Group is a bank so they are competing with the large banks that are very well known. Many of

their competitors are regionalized so they have different target markets. This is seen as an

advantage due to the personal aspect of Metabank because they can have a more intimate

relationship with their clients. That is why Metabank has a section dedicated to farm banking on

its website. The group still looked at the competitors of CASH to see how the stock would

perform with the rest of the industry. CASHs ratios are similar to the industry average, which is

good because it is easier to determine the future of the stock when it seems that it is more likely
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to move with the industry. The industry average P/E is 24.9, which is only 1.83 higher than

CASHs P/E.

One competitor that is similar to CASH is United Financial Bancorp Inc. (UBNK).

United Financial Bancorp Inc is a regional bank located in New England, specifically

Massachusetts and Connecticut. Despite the banks being in very different locations they have

similar ratios. UBNK has a beta of 0.76 which is only .04 less than CASH which is insignificant.

However, CASH has a significantly higher P/E and EPS; UBNKs P/E is $12.20 and EPS of .9

while CASH has a $23.13 P/E and a EPS of 3.91. This shows thats Meta Financial is making

more money per outstanding share. United Financial Bancorp Inc. has a P/E that is significantly

lower than the industrial average of $24.9. This is very different from Meta Financial Group

because they are just under the industry standard by 1.77. Also, UBNK has a slightly larger

market cap of 872 million. When compared to United Financial Bancorp Inc. Meta Financial

Group is a better company, with a significantly higher P/E and a stronger EPS.

Another competitor of Meta Financial Group is First Defiance Financial Corp (FDEF).

First Defiance has a smaller cap than Meta Financial Group by $390.36 million. This shows that

CASH has more in investors than FDEF. FDEF has a P/E of $14.98 which is about $10 lower

than the industry average, whereas CASH is very close to the industry average. Frist Defiance

Financial has a EPS of 3.07 which is close to CASH, but CASH still earns $0.85 more per share.

FDEF has a beta of 0.96 which means it is slightly more volatile than Meta Financial Group, but

less volatile than the market as a whole. Over all, Meta Financial Group compares well against

other companies in the industry. The team recognized its potential as a stock and will continue to

hold CASH as it moves forward.

Short Sale Holdings

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Short selling was instrumental in keeping the portfolio afloat during the tough times

experienced during the time period of September 19th through November 18th. The portfolio

engaged in short sales of 7 different companies. However, one short sale eliminated all of the

returns the portfolio was recognizing. Setting that one transitions aside. Short sales would have

produced returns of $190,245 for the portfolio. When shorting companies, the team looked at the

short term for the amount of returns that could be gained within the same day. Six of the seven

short sales were day trades and it was because of this success, the portfolio decided to take on

more risk and utilize short sales more an more. The current economic environment made short

sales more advantageous which is why the team actively pursued these opportunities. Delcath

Systems and InspireMD will be used to show how effective short selling was for the duration of

this portfolio.

InspireMD (NSPR)

Company Overview

InspireMD (NSPR) is a global healthcare company that is located in Boston,

Massachusetts. InspireMD focuses on creating and producing technology to control the flow of

blood to certain areas. Some products are used to help blood flow in areas where there is a blood

clot. Others are used to prevent the flow of blood to areas of the body for different reasons. Their

companys products are based around MicroNet technology, which is a bio-stable synthetic fiber

used to trap plaque from building up on the wall of blood vessels. Their main product uses

MicroNet technology to prevent blood clots and allow blood to flow normally to your major

blood vessels. This product comes in many different sizes to cater to different needs. Even

though these products seem to be very beneficial to the marketplace, the management team felt

that NSPR was a shortable stock.

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Similar to Delcath Systems, the financial data was not the main concern when finding

this short sale, but was still a part of the process of determining if the stock is shortable. The

stock has a P/E ratio of -.25 and an EPS of -11.08 indicating no earnings are being generated by

this company. The company has had a strong downward trend over the past year which always is

a great indicator for a shortable stock. The beta of NSPR is -.07 showing the stock is not very

volatile. The financial statement does not indicate that InspireMD is a healthy company. Cash

reserves have been decreasing meaning the company is eventually going to run out of capital to

keep funding its operations.

Position

The position that initialed the short sale for InspireMD was opened on November 1st and

only one transaction was required for this stock. The management team opened a position of

220,000 shares at the price of $3.46 per share. The market value for the short positions was

initially $768,120 taking up a significant portion of the portfolios available cash servers and

margin. The positon was initialed due to the rapid unexplained increase in price that the stock

was witnessing. A company that is in the red and stock price who has been on a steady decline

for the past year should not be increasing by close to one hundred percent in a day. There was

also very high volume similar to that of past short sales.

By sticking to the portfolio strategy and investing for the short term the position was

closed on the same day. The 220,000 shares were covered at a price of $3.14 meaning the value

of the positon had decreased from $768120 to $697,080 netting the portfolio $71,040 by retuning

9.25%. This was a very small move in the stock but it was important for the management team to

remain true to the strategy and focus on the short term. However, if the position had remained

open, the price did decline further meaning the possibility to have higher earnings was there. The
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management team has adapted its strategy to be sure to review the momentum of the stock to see

if the possibility of a greater decline is present.

Competition

Like all short sales, competition was not a key factor in the decision making process. The

financial ratios for NSPR all fell below the industry standards. Even though the company does

engage in a great amount of research and development it is not competing at the level of its close

competition to be gaining market share. The market cap of NSPR is only $3.98 million

indicating that it is a small cap company. It is because this company is so small is that it is

susceptible to these large spikes and falls which makes it a prime target for short sales. NSPRs

products are trying to compete in one of the most highly competitive markets, Healthcare. This is

why the company has been facing large barriers to entry and is part of the explanation for all of

the financial hardship that the company is facing.

There was no common trend across the industry for NSPR and no news to explain this

movement in price. Without a proper explanation, the management team made the move and

executed the short. This short sale provided the greatest dollar return of any short sale. The team

did see a good amount of success shorting stocks within the healthcare sector because of the

tendency to increase rapidly then decline. The portfolio management team does not place heavy

weight on the competition of short sales because they are such a short term investment and this

method has proven sucessful.

Delcath Systems (DCTH)

Company Overview
 20

Delcath Systems (DCTH) is located within the healthcare sector and falls under the Drug

Delivery Industry. The company focuses on specialty pharmaceuticals and medical devices for

liver cancer. This is a very narrow market for the company considering this is the only area that

they place their focus in. Even though the company's mission to help in the fight against liver

cancer is noble, it does not necessarily make them a great company. DTCH's financial situation

is not very strong. Year over year, the company has lost millions of dollars. It is understood that

Delcath Systems does engage in a fair amount of research but the company spends almost twice

as much money on selling and administrative expenses as they do on research and development.

With a proprietary product that no one else in the market place produces, it is expected that they

would preform better.

The financial ratio's for DCTH was not the main area the management team looked to

execute the short sale. With a P/E ratio of -.20, it shows that the company was losing money and

was bellow the industry standards. The earnings per share of 10.07 paints a similar picture for

the company. The beta of DCTH is 1.75 indicating the volatility of the company which is usually

not a great indicator of health. As a matter of fact, none of the financial data paints a decent

picture of the company to begin with. That information combined with it's rising stock price

made this stock a worthy candidate for executing a short sale.

Position

The short positon for Delcath Systems was open on November 4th and closed on the 7th.

the stock was shorted twice on the fourth. The first transaction was for 17000 shares at $2.22 and

the second was for another 17000 shares at $2.35. this came to an initial short of $77,690. The

only reason why this stock was shorted twice was to increase the capital allocation. This

company was seeing a rapid increase in price on the day of November 4th and seeing the unusual
 21

volume that the stock was being traded at, the management team felt that the stock was being

over bought and decided to place short positon on the stock. There was no relevant news that was

pushing the price up. The company also had experienced a reverse spit earlier in the year

possibly alluding to more issues for this company.

The management team covered the position of 34000 shares at a price of $1.65. This

provided a dollar return of $56,100 or a rate of return of about 28%. This was a great return for

only holding the stock for a couple days. DCTH provided the greatest rate of return for any short

sale executed and the dollar return would had been greater of more capital was allocated to this

particular stock. To avoid increased costs for the portfolio's clients, the team tried to limited the

used of margin, therefore the amount of funds allocated to this stock needed to be covered with

cash on hand.

Competition

Reviewing the competition of this short sale is not completely necessary for this short

sale. In regards to the strategy, because this is such a short term focus for the short sales, the

team does not place a great deal of time in the research for competitors. The team does review to

see if this is a trend across the industry but in this case Delcath Systems, it was seeing this

unusually large volume and price increase while its competitors were not. This showed that the

industry was not affected but rather that it was a one time, single increase for DCTH. Comparing

the financial data to the competitors shows the company is not as healthy in comparison to the

industry. The market cap of Delcath Systems is only $4.35 million indicating that they are a very

small company.
 22

It is because Delcath Systems is so small that it makes sense for their selling and

administrative expenses to be elevated. As their product becomes more mainstream in the market

they will gain market share in the future as long as they are able to overcome these barriers to

entry. In the short run this company is facing a very turbulent market causing these large

fluctuations in price. DCTH just so happened to meet the management teams criteria for short

sales and it proved to be effective. Depending on the policies that will be put in place once

president elect Donald Trump takes office, Delcath Systems business could grow. In order to be

competitive the company will have to adapt to new polices along with bringing down their

expenses. If they are able to come out with more effective products, DCTH could be a

worthwhile long position in the future but at this point in time they are not stable enough to

constitute that, so making a short sale was a better option.

Portfolio's Unforeseen Circumstance

Entering into the week of November 14th, the management team was looking to engage in

another short position to perpetuate the positive returns the portfolio was seeing. The portfolio

was worth $3,135,191.58 prior to the final trade made by the management team. The question

that the team has received was how could the portfolio go from having this level of returns to

closing the week with negative returns of $460,970.32. The simple answer to this question was

from a series of unexpected events associated with the short sale the team engaged in.

The company that the portfolio engaged in for the short sale was named DryShips, Inc.

(DRYS). This company sea based sipping for dry cargo. This includes steel, eclectic utilities, and

construction materials. the portfolio actually traded DRYS multiple times over the past few

weeks. The financial data indicated that this company is loaded with debt and has had negative

cash flows indicating poor financial health. The financial ratios tell a similar story. No P/E ratio
 23

is reported and the EPS for this company is 1242.93. The company also has a beta of 2.72

indicating high volatility. Overall this is not a healthy company and the first time that the team

stock was shorted this company, it turned out to work in the favor of the portfolio.

The first transaction for DRYS occurred on November 10th. the stock was short sold

twice this day with the first transaction being for 12,000 shares at $13.30 and the second being

for 12000 shares at $14.13. This equates to 24000 shares with an average cost of $13.72 for a

total short position of $329,160.00. By the end of the day the price of the stock had declined to

$11.55 and the team locked in the returns of $51,960 or 15.7%. It was because of this success

seen with DRYS and short selling that the management team thought it could engage in another

short sale with this stock. However, this proved to be unsuccessful.

Four days later, the stock price of DRYS had increased once again by a large percentage.

With no news to sustain this type of growth the team decided to engage in another short sale.

From past experience and research on the stock, it was suspected that the price would increase

and then there would be a sell of at the end of the day. The positon was initiated for 7500 shares

at 20.06 and again at $23.35 for a total short position of $325,575.00 and an average cost of

$21.71. With a strong belief that the price would decline the team was shocked to see that at the

end of the day the price had increased. Not panicking, the team held the position over night to

see how the afterhours market would affect the price. Unfortunately this did not work as planned,

because the stock price had opened higher the next day. Without wanting to risk losing more of

the clients money, the team decided to close the position at $58.50 for losses of $-551,925.00 or -

169.5%.

This move did cost the portfolio a decent amount of capital but the stock did run up to

over $100 a share that day. To capitalize on this unexpected upward movement, The team acted
 24

fast and purchased 5000 shares at $61.00 on margin for a cost of $305,000. Even though the

price did reach over a 100 a share, because of hesitation due to the stock's volatility, the position

was closed for $76.27 a share, netting a profit of $76,350. This made great progress in making up

for the losses and with continued monitoring and better oversight, the portfolio will be back in

the black in no time.

DRYS was not the only company limited to this rapid increase in price. The entire

shipping industry was witnessing increasing in price. It is believe that this is because of the

trump victory in the United States election. However, this victory does not constitute hundreds of

percentage points increase in price for DRYS. There had to be something else going on but there

was no relevant news until a couple days after the position was closed. NASDAQ, the exchange

that DRYS is traded on actually halted the stock because it was requesting information from the

company to constitute the increase in price. The stock had increased over 1500% in a week for

no reason at all causing the NASDAQ to become involved to help protect investors. This

company has a great amount of debt meaning they could go bankrupt at any time. After the halt

was lifted the stock price had actually dropped to around $5.00 a share meaning that if the

position was kept open, the portfolio would had recognized profits. It is difficult to know that

these events would have played out the way that they did. There is always risk involved with

investing and there is no way to have perfect information. The stock would not have been halted

if something shady was not happening. Overall DRYS proved to be an oversight from the

investment team, partly due from too much trust in the team's intern, Georgi. All joking aside,

this is the nature of investing, there is no perfect method for timing the market.

Ethical Recommendations
 25

The portfolio management team understands that the current state of the portfolio may be

cause for alarm for some of the clients. The purpose of this document to establish greater

confidence in the clients and help them understand what is happening to their money that they

have in trusted to N.A.P.S. Financial. The team hopes that clearly laying out the methodology of

how investments are chosen should show the clients that there is sound reasoning behind each

investment made and that decisions are made methodically. The management team is always

evolving its strategy to keep up with market trends which it why it decided to more aggressively

pursue shorting opportunities in recent trades.

This is not the first time the portfolio has experienced losses since its inception. However,

these numbers did not sway the teams confidence to build wealth for the clients. Making

aggressive moves and taking on risk is the only way to recover losses and it was proven by the

team that it can make up losses in a relatively short amount of time. It must be kept in mind that

this portfolio from the very beginning has always been a high risk portfolio. Small and mid cap

companies typically do not have the same stability provided by large cap companies because

these companies are still growing and fighting for market share. Investors in the N.A.P.S.

portfolio were all notified when they opened the positon with us that this portfolio does carry

great risk but the management team only has its clients best interest in mind with each move that

it makes.

The oversight made with DRYS was very difficult to foresee. The stock had fit all of the

criteria of the short sale strategy used for the portfolio and profits had been previously realized

by short selling the stock. It was out of the management teams hand that the stock price would be

so artificially inflated and the team believes that the right decision was made by limiting the

losses. It was unclear that the stock price would decline and it did not until the NASDAQ got
 26

involved. Short sales do carry a great risk but do offer the opportunities, when correctly

executed, to provide great rewards.

Since the position in DRYS has been closed, the intern in question has been relieved of

their duties because of their involvement in the transactions as well as the generally hostile

environment that she facilitated. Also the short sale strategy has been adapted to better protect

the portfolio from potential situations similar to DRYS. The team will now look deeper into

news and market sentiment before opening the positions to ensure that there is less of a

possibility of the stock price going on an upward run. If the stock price is going to increase, the

short sale needs to be executed at the optimal time.

Overall, the team asks the clients to believe in the management teams ability to recover

the effects from DRYS. High risk portfolios have the potential to swing up and down rapidly and

this just happens to be a downward time. The economic conditions post election have opened up

a number of different buying opportunities for the portfolio that will be effectively elevated. The

management team does recommend that individuals closer to retirement age not overload their

retirement accounts with this portfolio. The high risk associated with the strategy has been

adapted towards young investors looking to see big moves, not steady income from dividend and

reliable growth quarter to quarter.

There are actually a couple beneifts to the value of the portfolio being this low. The first

being that for tax planning purposes, the clients will be able to show a loss to save on taxes

associated from profits from other N.A.P.S. Financial products. Also, there has never been a

greater time to buy into the portfolio. Getting this type of management at this discounted price

will provide excellent growth opportunities. The management team does not foresee the value
 27

receding to this level again and will make the most of every opportunity to grow the portfolio

value for out clients. Thank you for choosing N.A.P.S. Financial.

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"CRISPR." CRISPR. N.p., n.d. Web. 02 Dec. 2016.

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"WELCOME TO METABANKS FRESH, NEW WEBSITE." MetaBank. N.p., n.d. Web. 02

Dec. 2016.