2. Introduction Page 30 of the Current BI Magazine lists 5 small stocks with potential to fill in the weak spots in our portfolio. Looking at the diversification table I published last month you can see the places we need to fill in and improve. We have too many large companies [that don't grow at the rates of small and medium sized ones]. We need to focus on adding to the areas where we aren't and not add more big mature companies.

3. As the article states The classic balance recommended by BetterInvesting is 25% small, 50% Medium, and 25% Large companies based on annual revenues. As Better Investors, we prefer companies with 30% or less in Debt. For Large-Cap stocks (revenues >$5B), expected growth rate should be 7-10%. For Mid-Cap stocks (revenues $500M – $5B), expected growth rate should be 10-15%.

4. The stocks we considered are Advanced BatteryABAT HMS HoldingsHMSY MedifastMED Portfolio RecoveryPRAA SynapticsSYNA Plus several others.

6. Recommendation We believe Medifast [MED] fills a sector in our portfolio where we are not represented. Medifast [MED] is an excellent small stock with great growth potential. Here is why.

7. Medifast Background Medifast is an organization that produces, distributes and sells diet products The organization had revenues of $105 million in 2008 and $165 million in 2009 and projected revenues of $259 million in 2010.

8. Background Cont’d Medifast has three primary channels of distribution: 1.Take Shape for Life – Direct Selling Model of Distribution using “Health Coaches”. Makes up 61% of revenue. This channel had revenue growth of 101% from 2008 to 2009. 2.Direct Response – Orders placed directly through the website. Makes up 29% of revenue. This channel had revenue growth of 7% from 2008 to 2009. 3.Medifast Weight Control Center – Brick and Mortar centers; 39 in 2009. Makes up 10% of revenues. Expected to add 13 addtl in 2010. This channel had revenue growth of 93% from 2008 to 2009.

9. Competition Medifast’s main competitors are Herbalife, Weight Watcher’s and NutriSystem. 1.NutriSystem is a solid small company; revenues and earnings have shown declines from 2007-2009; now rebounding. 2.Herbalife has higher debt; also not in the buy zone. 3.Weight Watchers has been relatively flat over the past three years…not in the buy zone.

10. Fundamental Analysis We will now discuss the: Medifast SSG Analysis of Annual Report using Bob Adams’s Annual Report Analysis Tool Impact on Portfolio Diversification Table