Frmo Corp

Charisse, are you there? Yes, you're ready to go. It is being recorded.

It is being recorded. Perfect. Okay. Thank you. And good afternoon, everyone. This is Therese Byer speaking, and I'm the Corporate Secretary of FRMO Corp. Thank you for joining us on this call. The statements made on this call apply only as of today. The information on this call should not be construed to be a recommendation to purchase or sell any particular security or investment fund. The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the security transactions referenced today have been or will prove to be profitable, or that future investment decisions will be profitable or will equal or exceed the past performance of the investments. For additional information, you may visit the FRMO Corp website at www.frmocorp.com. Today's discussion will be led by Murray Stahl, Chairman and Chief Executive Officer, and Stephen Bregman, President and Chief Financial Officer. They will review key points related to the fiscal 2024 third quarter earnings. And now I'll turn the discussion over to Mr. Stahl.

Okay, thank you, Therese, and thank you, everybody, for joining us. I'll just sort of just make a couple of highlight points. that are financials, which I think you'll find interesting. And then I'm going to answer some questions I always get, but I never get them in real time online. I only get them as I encounter people. And they ask them, and it's too bad because the answer only goes to one person. I really think I should share it with everyone. So that's what I'm going to do. So as far as financial statements go, I believe, if I'm not mistaken – that our shareholder's equity attributable to the company of $219.4 million is the highest we've ever had. And our total assets, which is total liabilities and shareholder equity of $388 million, I think that's about as high as we ever had. So it's getting to be big sums of money. But what these financial statements don't do is they don't show you detail behind them. So an important detail, and I'll get to some questions about that detail momentarily, an important detail is that we're actually building a crypto business and we're on the way to becoming a crypto operating company. So the components of that are we now own 1,655,000 shares of Winland. And I think that's something like 35% of the shares. We keep filing 10B5 plans, and we have one on right now, which is in a quiet period, and I think May 1st, it recommences. So Winland is now largely a crypto miner. We also have a smaller investment in consensus mining. Consensus mining, if everything goes right in a few months, is actually going to have a listing. and that's also a crypto mining company. We also, if you look at our balance sheet, you'll see about $1.3 million of digital mining assets we actually mine for ourselves. And put it all together, it would not be a small cryptocurrency mining company if it weren't diffused into three different pockets. But the three elements, are, generally speaking, getting bigger gradually. We also have, as you can see from our cryptocurrency holding summary, we have a fair amount of cryptocurrency holdings, either directly or indirectly, some in ETFs and some directly. So I'll just speak about what we've been doing in these things. and what we've not been doing in these things. So the crypto has been, I dare say, pretty successful. So one question which I get, and it'll require a little bit of a lengthy answer, is the balance sheet cash, which is $38.8 million. Why do you need, as people frequently ask, but never on this call, why do you need $38 million of cash? It seems to be always around that amount, why not take the bulk of that and put it into Bitcoin? And that requires a little bit of explanation. We don't want to be a Bitcoin holding company. We want to be a cryptocurrency mining company. And that's an important distinction. Let's start with this. If we were to put the $38 million into one of the various ETFs that have been approved since the last of these meetings, this is what happens in the long run to a cryptocurrency ETF. Cryptocurrency produces no interest, no dividends. The fees are small, but they're fees. So the fees can only be paid by selling a little bit of crypto. So what would happen is, even if the fund gets a lot of money, the fund always trades at net asset value, the number of crypto coins per share or per unit, if you prefer, is always going to go down. Sailing distinction without the only distinction with a cryptocurrency mining company is, if you do it right, the crypto per share is going up. So you're producing crypto. And it has some very interesting performance aspects as well. So it's theoretically possible in a year, cryptocurrency can actually go down by 20%, but you might have mined 10% more coins. And if those are indeed the numbers, you are in equilibrium. So crypto has a different risk-reward pattern than your typical... But the more salient point is, of course, that you're going to be producing more crypto. You're organically growing your net asset value. So if you can continue to organically grow your net asset value and you do it with regularity, you're likely to trade at a premium to book value or a premium net asset value, which is a lot better than just trading at a net asset value level. So It's a very different outcome for shareholders. Another aspect, which you might find interesting, women in consensus don't merely mine Bitcoin. Women in consensus are mining Bitcoin Litecoin and Bitcoin Cash. And also, anyone who mines Litecoin is also mining Dogecoin. Why is anyone... Mines Litecoin, mining Dogecoin, because Litecoin is a merge mine coin. And as a merge mine coin, for the same electricity, you're mining two coins instead of one. So you could, for example, take the Dogecoin, which is what we've chosen to do, pay all the expenses of mining, and keep the Litecoin. And it's very profitable. But the profit of mining is not the only dimension of that. which means daily operational profit. The idea is it's theoretically possible, and before I say it, let me just point out that I'm probably the only person who even believes this. The lesser coins, in my humble opinion, have potentially more upside than Bitcoin, which I think has a lot of upside. The reason it might have more upside is because the size of the other networks are very small. So for example, the Bitcoin network is now over 600 exahash. An exahash, by the way, is one followed by 18 zeros. This is a big number. In ordinary parlance, you'd say quintillion. Litecoin, as an example, has in round numbers one petahash network hash rate. So one petahash is one 600,000th, meaning that the Bitcoin network is 600,000 times the size of Litecoin network, which explains why Bitcoin has a much bigger market capitalization. But if you could get the hash rate to go from one petahash to two petahash, which is a rounding error in Bitcoin, could double the size of network and probably double the value of network. Bitcoin Cash... has an aggregate network hash rate of about two and a half X hash. So it's less than a half percent the size of the Bitcoin network. It's theoretically possible for, in a whole host of scenarios, for processing power to move from Bitcoin to Bitcoin cash. And it has happened, although in a small scale, over the last year or two. That small scale, which most people can ignore, would indicate, and it's happened, that Bitcoin Cash actually significantly outperformed Bitcoin over the last year, as an example. It's possible that Bitcoin Cash, which doesn't have a use case right now, might find a use case. Anyway, the network's sufficiently small, although still secure, you could make a case for it. And you can make an excellent performance case for it. So we have that. Now, if you're going to build a mining business, you have to build it gradually and slowly. The temptation is you have a lot of cash. As they say to me in any event, why not put it to work? Well, here's why not put it to work. Because you have to assume that every three or four years, your mining equipment is going to be obsolete. Now, the estimated useful life of the equipment is actually less than three years. So a lot of it's going to wear out. But if it doesn't wear out, in our case, we've been rather lucky. It hasn't worn out. Every four years is a halving. So the common feature behind Bitcoin, Bitcoin Cash, and Litecoin is a halving every four years. And a halving means that every four years, your block reward is cut in half. That's why they call it a halving. But your cost of mining remains the same. So costs remain the same. Your revenue is cut by 50%. What business could endure that? Every four years. So what you need to be in position to do is you need to be able to replace your entire network. No less every four years and sometimes even more frequently than that. Now, the other side of that is when you replace your network, the equipment you replace your network with is much, much more efficient in its electric power usage and actually in its durability. So you're buying every dollar you spend for equipment buys more processing power. or put another way, the cost of one terahash of processing power is constantly falling. So for the same amount of money that you had bought a Bitcoin miner 80 years ago, today you could probably buy 12, maybe even 14, and they're much better. So if you invest a lot of money in one iteration You have no way of knowing when there's going to be a technological breakthrough. All you know is that in short order, there will be. So you'll have no capital reserve to replace your equipment. And you see, that's actually what's going on in a lot of the mining companies right now. Capital was raised. Capital was invested. We're in Bitcoin three days away from the halving. At the current price of Bitcoin... most iterations of equipment are not going to be profitable. Now, maybe in the next three days, the price of Bitcoin goes up, and remedy is that, but assuming it's not, those machines are going to have to be turned off. So if you placed orders to be delivered over many future months, by the way, when you do that, there's actually a natural futures curve in equipment purchases. So if you order equipment for August delivery, August 2024, it's actually meaningfully cheaper than if you order equipment for May 2024 delivery. And you get a much better deal on it. So you always want to be in that position. So what's going to happen is if the scenario proves to be true that the leading equipment supplier generations of the last three or four years are going to be made effectively obsolete and inoperable by the halvings. The modern generation equipment is going to take over. So let's just say there's a halving. Your revenue is cut in half. Bitcoin price is unchanged. But if half the machines are turned off, the people you were competing with for the block reward, some of them melt away. And in this simplistic instance, you'll get twice as much block reward measured in coins as you were getting before, even though the actual block reward itself is less, meaning you'll get proportionately less than actually less. So what'll happen is you will be in equilibrium. You may even be in approved profit position. So you dare not invest a lot of money any one time, because if you do that, you've lost all your strategic flexibility. Now, the negative thing from a shareholder point of view is it takes a long time to build a cryptocurrency business in that way. But I think if you were to compare, you can't see consensus yet because this isn't publicly traded, but you can see Winland. So you at least have a window on how things work in a gradualistic cryptocurrency mining effort. I dare say it's actually been very, very successful. So I think our holdings are roughly 35% of Winland. May 1st, I believe, is the day of the activation of new 10b5 plan. And we're going to continue with our policy. So I dare say, in crypto, we're ready for just about any conceivable scenario. So we're staying away from bold moves. All that notwithstanding, we still buy modest amounts of crypto. And were we ever to attain the majority interest, Winland, we would have to consolidate that. And it would improve our crypto holdings. I believe in our cryptocurrency holdings review, which I have in front of me, I believe that, correct me if I'm wrong, Therese, we're not specifically disclosing Winland or consent, our share of Winland and consensus cash. Is that correct or am I not correct as far as that goes?