Frmo Corp

Good afternoon, everyone. This is Therese Byers 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 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 2025 first quarter earnings. And now I'll turn the discussion over to Mr. Stahl.

Okay, thank you, Therese. Thanks, everybody, for joining us. So I'm going to, in my... introductory remarks, I'm going to do it in two parts. One, I'll point out some things I find interesting that are on our financial statements. Then I'll point out some things that are not on our financial statements that I also find interesting that would be good to get some more information on, I think. And then we'll go to questions. So let's start with the things that should be obvious. So looking at the balance sheet, you can see there are Total assets, $548 million. That's a record for us in the event. And you'll see our cash balance. I'm not sure if the $42.4 million is a record or not. It looks like it's certainly a recent record for many, many years. I don't know if we might have modestly exceeded that at one point. But if we did exceed it, we didn't exceed it by much. So it's close to a record, possibly a record. Here's some things that are on the balance sheet that the consequences are not necessarily so obvious. Let's do the most obvious of less obvious first. You'll see our deferred tax liability is now up, exceeds $42 million. It's basically a tax-free loan from the government. As long as we keep that going, we're going to earn a lot more money than we otherwise would earn if we paid debt. So that's one of the reasons, but not the only reason why we're long-term investors. So that is a number worth paying attention to. Now, a part of that number is something you'll see under security sold, not debt purchased. We basically sell short what we call dysfunctional and other people call path-dependent ETFs. and you see our cost basis comfortably exceeds $10 million, and the market value is less than $1 million, it would be nice if we could carry that and never realize a tax. But there are two things bad. Number one, sometimes if these are... these are exchange-traded notes or ETNs. Some of these are exchange-traded notes. They have a maturity date, and we have to realize it. So we have no choice in that regard. And secondarily, even when they're funds, they're ETFs, and they're not notes, and therefore we don't have a maturity date as such, those funds pass out K-1s to people. And if we're short, then we might... inadvertently or let's say by the nature of the investment have profits passed out to us from being short and therefore we have to pay tax on it. So it's not quite as good as a long-term security that you hold, but it's almost as good. So that when that declines in value, there's margin released. And as you can see, that is not insignificant part of our cash balance. And we use our cash balance to do all sorts of interesting things. you'll hear about presently. Another thing that you'll find not so obvious but interesting, so you have these digital assets. It's now over $9.5 million. We keep mining more digital assets. You'll see the cost basis went up. The cost basis goes up not because we bought digital assets, we mine digital assets. So the mining is continuing. We have to live with the fluctuation up and down in value. And in this quarter, the value actually went down modestly. But in the long run, it's going to be a great investment. That also forms a part of our deferred tax liability, it's worthwhile saying. Now, if you go further down the balance sheet and you will see digital mining assets, that is the equipment net of accumulated depreciation. That's actually the equipment that we have, that we own, that we use to mine. You'll hear in a moment about we've been doing a lot of our mining inside of Winland. You'll hear about that presently. We're not actually letting these amounts decline nothingness. here presently been changing the kinds of equipment we've been buying. And we've been buying mining equipment gradually. This is a very unusual sort of balance sheet position relative to other companies. Other companies make huge investments at one time and they wind down, make the market. We've had a gradual approach. Now, I'll go into the gradual approach in just a minute or two. Let me point out where we've been dramatically increasing our crypto investments and that's by expanding into Winland. So much of our cryptocurrency mining activity takes place in Winland. So we own as a firm now, these are round numbers, not exact, but for our purposes, they're exact enough. We own as a firm about 38% of Winland. And, um, Because a company related to us called Horizon Common and myself personally own about 2%. We control about 40% of the votes of Winland. So we do two things. One, we buy Winland in the market to gradually increase our exposure. But secondarily, of late, for most of the cryptocurrency mining equipment we bought, we basically swap that. We buy new equipment. We swap it with Winland. in exchange for shares of Winland, and that of course raises our ownership of Winland. The reason for the gradualist approach is twofold. The first is that when we started mining years ago, there was no one, including ourselves, that knew everything there was to know about mining, nor could anyone have known everything there was to know about mining, because the nature of mining over the last eight years has changed in some ways quite dramatically. So we've been learning as we go. And our mining operations have gotten much more efficient than they ever been. And I would say this year, to count the year 2024, we've made the biggest strides we've ever made in efficiency and profitability. And we're still learning. So it's an ongoing learning experience for everyone. Second reason is the nature of the equipment is constantly changing. So you were to compare the most recent iterations of equipment and the energy efficiency related to that relative to the equipment that you could have purchased eight years ago, it's just incommensurable how much it's improved. Now, if the equipment generations were released On a predictable cycle, what you could do is you could buy a lot of equipment in one order, and you could wait for it to depreciate, and you'd know, you'd be able to plan at what time you need to buy new equipment, meaning you'd be able to know in advance when your equipment might be obsoleted. The trouble is that there's a number of companies active in that field, and no one knows, including sometimes the companies that produce this equipment, when the new generation of equipment is going to be released. They're all competing with each other. So it's not an established market in the sense of equipment markets under field, trucking, agricultural equipment, automobiles. It doesn't have a schedule attached to new equipment iterations. Therefore, we have to be very careful not to put too much money into any one generation equipment for two reasons. One, the danger of being obsoleted by a new innovation. And secondarily, the new equipment, we'd like to buy a small amount and test it because some equipment is just more durable than others. And we've had some great experiences where we bought equipment and we would have thought ourselves very fortunate if we would have gotten a useful economic life of not even three years, we ended up getting an economically useful life that exceeded four years. Sometimes it happens. I'm being very fortunate in that regard. On the other hand, sometimes some other things happen that we either couldn't have predicted or we should have predicted but we didn't predict. Here's something we should have predicted. This happened a while ago that we just didn't predict. We should have more thoroughly checked every delivery of equipment for the presence of viruses. And on one delivery, we forgot to do it. It's a remediable situation, but you have to stop what you're doing, unplug all the machines, and search for viruses. And that can be very time-consuming. Then you have to remove the viruses from machines. That can be even more time-consuming. And how effective it is, we had a certain period of time when we couldn't use the equipment productively, meaning we couldn't mine. It wasn't a great number of devices, but it actually happened. And it wasn't a great number of devices because we never buy in any shipment a great number of devices. And that's one of the reasons we don't do it. Unfortunately, we forgot to check that shipment. And look, they're human beings and sometimes these things happen. Here's something that we probably could not have predicted but happened to us. We have diversified our equipment into a variety of different hosting sites. Some cases we control those sites, other cases we don't. And believe it or not, some of our equipment actually got hit by lightning. wasn't destroyed, but was rendered basically inoperable. So did we have insurance for those machines? No, we did not have insurance for those devices. Why did we not have insurance? Should we not have predicted that? We did predict it. We would very much have liked to have had insurance. Unfortunately, at that point in time when these things happened, no insurance company was willing to insure Small batches of advices. They felt that the underwriting results were too unpredictable. In any case, on our balance sheet, we're effectively, not really, but effectively self-insuring. We can afford the odd mishap if it actually happens. So we're well prepared. In any event, at some point, or actually at this point, we're increasing our... ownership of Winland and we're increasing our crypto mining activities. They're getting much more profitable than they've ever been. And at some point, if we reach that point and we own over 50% of Winland, we're going to have to consolidate. At that point, FMO will be effectively an operating company. So as I said, we're learning constantly. Our profitability is increasing. It's never been better than it is right now. And if things go as planned, It's going to be better yet in the forthcoming months. We've been looking for many, many years for business to get into to turn this into an operating company. We didn't want FMO to be yet another asset management company. And of all the, and I wrote this in the shareholder letter, of all the potentialities, there were businesses that we didn't know very well. We didn't want to buy those. There were businesses we did know very well and we liked, but they were just too expensive, we wouldn't have had a high return on capital. So it became this, and this is something that we thought would be within our ability to comprehend and end up having a good outcome with, and I think you can see from the results, we have a pretty good outcome thus far. So that's the plan, and that's a brief resume of what we've done. So without further ado, maybe Therese, you probably have some questions that you've compiled. And I think we'd be delighted to answer those if you would kindly read them to us.

I'd be happy to. The first one we have is, what FRMO issue keeps you up at night?